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Selecting a Retirement Plan Advisor Using Quantitative and Qualitative Data

Fred Barstein, Founder and CEO of The Plan Sponsor University (TPSU) delivers his Fred TALK concentrating on how Retirement Plan Sponsors should be working with their Retirement Plan Advisor.  He discusses a strategy of employing both qualitative and quantitative data when selecting a retirement plan advisor.  Using quantitative criteria will enable plan sponsors and members of a retirement committee to incorporate the same criteria established over ten years ago by The Retirement Advisor University in collaboration with UCLA Anderson School of Management Executive Education.  Other considerations for investment committees would be Fiduciary responsibility, behavioral finance, whether to use a 3(21) manager or a 3(38) manager, and which advisor designations should a benefits committee consider.

Full Transcript Here

Hi, this is Fred Barstein with our weekly Fred Talks. Today, I want to talk to you about picking a good advisor for your 401k or 403b plan. This is the most important decision you will be making to make sure that your plan is successful. If you get this right, your plan will go smoother. Most importantly, your employees will be more likely prepared for retirement. If you get this wrong, and your plan becomes a constant headache. Most importantly, it’s not likely that your employees are going to be ready for retirement. So let’s talk about some common-sense things you can do to pick a good plan advisor.

There are quantitative and qualitative measures. On the quantitative side, you want to make sure they have the right experience: number of plans, assets, years in the business. We have the 30/10/3 rule: 30 million of defined contribution plan assets, 401k or 403b; 10 plans; and three years experience. Anything less than that, with an exception, is a bit of a problem. It’s the requirement we for an advisor to get their CKP certified 401k professional designation from TRAU, our sister company.

Are they willing, and most importantly, able to act as an investment co-fiduciary, whether a 321 or a 338? Even though the DOL conflict of interest rule was vacated, it’s still important for that advisor, in our opinion, to be able to act as a co-fiduciary. Do they have a designation? The way I would judge a designation, is there any experience requirement because no matter how good the training, it doesn’t substitute for practical training. Is there an in-person part of the training? Adults learn by interacting with peers, not just by staring at a screen. I’m sure you have that experience. Does the institution that gives out the designation, are they monitoring that advisor to make sure that they’re keeping up with all the regulatory things that they’re required to do? The CKP designation, as far as we know, is the only one that has all of it, and that directory of those advisors all qualified are on 401kTV. Then finally, do they focus on your industry and the plan size? It doesn’t have to be exactly if you’re a construction company or a bookstore or a clothing store, but if they’re in retail. Do they focus on your plan size? So if you’re a 5,000-employee company and the highest and the largest company that work with or organization they work with is 500, maybe they’re not right for you.

On the qualitative side, we call it the ELI rating. E is for ethics. Are they ethical or not? You should Google them, but you can also go to BrokerCheck and FINRA or SEC and see if there are any violations. There, 99% right is 100% wrong. L is for leadership. Do they step up in a crisis? Are they proactive vs. reactive? Are they anticipating your needs? Are they bringing you new ideas, whether it’s legal or best practices? And then finally, impact. Are the ideas that they’re implementing having a positive impact on the company, for you, and again most importantly, for your employees by improving outcome. If it doesn’t, what’s the point?

What we recommend is you should look at your advisor as an OCRO, an Outsource Chief Retirement Officer. They’re sitting on your retirement committee. They’re creating the agenda with you. They’re taking the minutes. They are helping you to maintain the documents so that when there’s turnover, the new person has someone to turn over to. Most importantly, they’re acting in your best interests and taking a stand, not just saying, “Hey listen, this is your plan. Here are the options. You decide.” Have them take a stand. That’s what a good plan advisor has. Hopefully, you have one. If not, you need to look out and see who is a good one. There are RFP services like InHub. We have an ePad, is a tab on 401kTV. You can register and look and see how you can do an RFP, but also just use your common sense and ask around and ask your colleagues as well.

Thanks for watching 401kTV and stay tuned.


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