Understanding the Plan Advisor Market

adviceThe most important decision that employers sponsoring a DC (defined contribution) plan like a 401(k) or 403(b) is the selection of their plan advisor. According to Fidelity research, 84% of companies with 25-10,000 employees use a financial advisor to help them manage their DC plan. So what does the market look like and how should plan sponsors select the right advisor?

Research by TRAU (The Retirement Advisor University), an affiliate of 401kTV, shows that of the 300,000 active financial advisors licensed to do business with the public by either FINRA or the SEC, 250,000 either work on or get paid on a DC plan. But just because an advisor has a license to provide financial services does not mean that they are qualified to help on a DC plan.

Of the 250,000 advisors working on a DC plan, only 25,000 manage at least five plans with a total of $25 million in assets. Within that group, 2500 advisors manage more than $250 million. Plan sponsors should be very careful to make sure that their advisor has the experience, training and resources to manage their DC plan and they should be careful about advisors that get paid because they referred the case to another advisor but do not provide service for obvious reasons.

Beyond the number of plans and assets managed, plan sponsors should ask what resources they have to help that advisor manage their plan. Those resources depend on the requirements of the company and their employees. For example, does the plan sponsor want to offer one on one advice? Do they want to outsource fund selection and monitoring? Asking the question is one thing – getting formal answers are best done through an advisor RFP.

In addition, plan advisors need intensive training not just on investments, which most know well, or the intricacies of ERISA, which can be outsourced to 3rd parties like TPAs (third party administrators), but on plan design and other methods to limit liability while improving outcomes. There are a lot of designations but look for those that include affiliations with well-known universities requiring in-person training for more than just a day as well as experience in the DC market. TRAU, for example, is a collaboration with UCLA Anderson School of Management Executive Education requiring 3 days of campus training, 30 hours online and significant plan experience with at least 10 plans, $30 million and 3 years in the DC market in order for an advisor to earn their C(k)P (Certified 401(k) Professional) designation. (See the directory of C(k)P advisors.)

Take care and time in selecting and monitoring your plan advisor not just to protect the company but to help plan fiduciaries to manage the plan and prepare employees for retirement. SHRM has published a guide to selecting and leveraging a plan advisor.

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