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Your Advisors Review Investments – Who Reviews Them? – Ask The Lawyer

Your Advisors

YOUR ADVISORS REVIEW INVESTMENTS – WHO REVIEWS THEM?  “We use X to advise the Committee about investments and to run RFP’s for us.  X helps us review our other providers, but how are we supposed to review X?”

I got this question from a sophisticated client with good plan practices. It came after I pointed out that the Plan Committee’s Charter required an annual review of service provider performance.

Judging by the number of times I hear this question, annual advisor review often seems to fall through the cracks. This is unfortunate because advisors aren’t fungible. As in any field, there are great advisors and others who aren’t performing so well.

Why Review Providers?

Plan fiduciaries have an ongoing responsibility to make sure that all service providers-including advisors- provide good service for reasonable fees. The provider who got the business after your RFP may or may not have lived up to its promises. Benchmarking and periodic RFP’s help to determine whether fees for services remain competitive, but you also need to determine whether your providers are doing a good job.

What Should We Consider?

Some advisors produce their own benchmarking reports to show you that their fees are reasonable. You may want to seek independent fee benchmarking as well.  Committee members can also ask themselves specific questions to determine whether they are happy with the way the services are performed.  Is the advisor following the investment policy statement?  Do investment reports lack explanations for the recommendations? Do you get prompt answers to your questions? Is the advisor’s participant education effective?  How have the investments recommended by the adviser performed?  You can compare the performance of your funds against various benchmarks and average investment returns to get some idea whether you have been getting good advice.  Remember, most arrangements will make your advisor a co-fiduciary, but will not remove the Committee’s responsibility for making a good, diversified investment menu available to participants.

What Can We Do?

  • Schedule a specific meeting to review your advisor.
  • Request updated information, including updated Forms ADV and whether the advisor has been subject to regulatory discipline, complaints, or lawsuits since you last checked.
  • Review your services agreements and investment policy before the meeting to determine whether the advisor is following them.
  • Coordinate input from committee members on how the advisor is doing. Pass on the praise if people are happy. Ask that any deficiencies be specified, preferably with examples.
  • If you identify areas that need improvement, set a deadline for meeting again to provide feedback whether the hoped-for improvement has occurred. There isn’t any reason to wait until the next annual review.
  • If everyone is unhappy and improvement isn’t noted, it is probably time to start a new advisor search.

Carol Buckmann is a founding partner at Cohen & Buckmann PC, and has practiced at major law firms specializing in the areas of employee benefits and executive compensation for over 30 years. Carol frequently blogs, writes articles and is quoted in the media about current employee benefit issues.  See Bio here.


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