It’s hard for many 401k or 403b plan sponsors to determining whether their plan advisor is doing a good job just as it is difficult to find a new one. Along with the right experience and training, defined contribution (DC) have to determine if the advisor is the right fit.
But plan sponsors can deploy a simple, common sense standard we call the ELI rating which stands for:
Ethics is a black and white standard under which there can be no exceptions. Beyond lying, cheating or stealing, has the advisor in the last 10 years had criminal or regulatory issues? With the internet and FINRA’s BrokerCheck, that task is relatively easy. In an academic study prepared by researchers from the University of Chicago and the University of Minnesota, brokerage firms were rated based on the percentage of their advisors with disciplinary actions by FINRA, the industry’s self-governing organization. Overall, 7% of advisors have been disciplined with most firms generally in the 2-10% range and some as high as 20%.
Leadership means that the advisor is bringing plan sponsors new ideas without prompting – proactive not reactive. The advisor acts as a thought leader meaning their ideas change behavior. These ideas are relevant to the company and their employees not just hot new concepts. In times of crisis, the advisor automatically steps up. With limited time and training, 401k and 403b plan sponsors need to have their advisor take a leadership role which engenders trust and loyalty.
The third leg to the ELI rating is impact. If the ideas and the actions of the advisor do not have an impact on the company’s retirement plan and improves the health of workers’ retirement outcomes then what’s the point? It’s essential for plan sponsors to set up realistic goals for the advisor and then hold them accountable.
HR professionals understand the simple concepts of ethics, leadership and impact – they use them every day to help their companies manage human capital which is their most valuable resource. Applying the ELI standard to a 401k or 403b plan advisor, along with ensuring that the advisor has foundational knowledge and training as well as relevant experience, is an easy way for organizations to assess their plan advisor.
Latest posts by Fred Barstein (see all)
- St. Patrick’s Day Lucky for these 401k Plan Participants - May 25, 2017
- DOL’s FAQ Reveals Intent on Enforcement and Future Direction - May 25, 2017
- With Workers Changing Jobs Regularly, Why Focus on 401k Plan Outcomes? - May 24, 2017