What Retirement Plan Sponsors Need from an Advisor
Retirement plans are looking for more from their advisors than ever before. In particular, many sponsors of smaller defined contribution (DC) plans find it challenging and burdensome to manage their plans, struggling to keep up with the many responsibilities of plan management while at the same time trying to manage their business. While a 2014 Fidelity Investments study shows sponsor satisfaction with their advisor at 66% – up from 57% in 2010 – only 47% felt that their plan was meeting the goals of the company, and one in eight was actively looking to switch advisors. 1 If you serve on a plan committee and are considering adding an advisor or replacing one, you will want to ensure you get the best possible fit for your plan. We recommend that when exploring candidates, you consider a plan advisory firm that: FOCUSES ON RETIREMENT PLANS AS A CORE BUSINESS AND THEREFORE IS A KNOWLEDGEABLE EXPERT IN THE RETIREMENT PLAN SPACE It’s not easy to keep a DC plan running smoothly. There are a lot of fiduciary duties that carry legal responsibilities for plan sponsors, and it’s becoming more important than ever to make sure your advisor has the expertise to help you manage your plan. Don’t forget that it’s actually your fiduciary responsibility to hire competent and qualified parties under the plan. And while that seems elementary, recent research by AB (formerly AllianceBernstein) showed that more than one-third of DC plan sponsors were not even aware they were plan fiduciaries. 2 Many smaller plans are administered by mutual fund companies, insurance companies, payroll companies or Third Party Administrators (TPAs), which is fine. But plan sponsors many times incorrectly assume these parties are also acting as fiduciaries to the plan. It’s critical to know what you are getting in a plan administrator. HELPS TO DEFINE AND DEAL WITH REGULATORY RESPONSIBILITIES Your advisor should be educating you on your obligations under ERISA. Equally important, your advisor should also lay out how he or she is helping you meet those obligations. Is your investment policy updated
1 “Plan Sponsor Attitudes 5th Edition Survey Results: Trends and opportunities in the DC market,” Fidelity Investments (2014). 2 “Inside the Minds of Plan Sponsors,” AB (2015).
annually? Are investment committee meeting minutes documented? Can you demonstrate a clear linkage between the investment policy and any actions taken or not taken with respect to the plan’s investments? UNDERSTANDS FEES, INCLUDING THOSE THAT ARE NOT SO OBVIOUS New, more stringent retirement plan fee disclosure rules make attention to this detail mandatory. Understanding what you are paying can be difficult to determine. Look for an advisor who will regularly benchmark your plan costs to ensure they are competitive and reasonable as well as point out fees that are not so obvious. IS AN ENGAGED AND EFFECTIVE COMMUNICATOR Some plan advisors may talk at you or over your head, rather than communicating in plain English. The people who serve on investment committees are not necessarily professionals with an expertise in investments. The advisors you rely on must be able to communicate complex financial matters in understandable terms to help you make informed decisions about the plan. ACTS IN AN UNBIASED AND OBJECTIVE MANNER WHEN IT COMES TO OFFERING ADVICE One of the best ways to assess if your advisor is placing the interest of the plan ahead of his or her own self interest is to review the advisor’s compensation. Does the advisor adhere only to a suitability standard or is the advisor a fiduciary to the plan? If you’re not sure what capacity your advisor is acting in, just ask, “Where does your compensation come from?” and “Are you acting as an ERISA fiduciary to my plan?” If he or she Many employees lack confidence about their prospects for a comfortable retirement. Participant education, if done correctly, provides an opportunity to help employees better understand the benefits of a retirement savings plan and how it factors into their retirement. Whether done directly or in conjunction with other business partners, your advisor should be able to support your employee education efforts. SUMMARY The Plan Sponsor’s choice of a retirement plan advisor is one of the most important plan-related decisions that can be made. A thorough, periodic review can yield better protection for the company and the committee members, better service from the vendor and better support to help get the participants ready for retirement. can’t answer those questions, maybe it’s time to find a new advisor. CAN SUPPORT YOUR EFFORTS IN PREPARING EMPLOYEES FOR RETIREMENT
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