The Power of a Good Retirement Plan Advisor
If you’re like most people, you hire an accountant to help with your company’s bookkeeping and taxes and an attorney for legal matters. Your retirement plan is no different. If you’re interested in making your plan better and doing it quickly and efficiently, it makes sense to hire a good, experienced, fiduciary-based, ERISA-focused retirement advisor or consultant.
Good advisors make a retirement plan better across all dimensions of plan success and do so in a conflict-free manner.
By “better,” I mean your plan puts your participants on track for a secure retirement while at the same time reducing your organization’s risk profile. The best of today’s ERISA-focused advisors think holistically and are knowledgeable about all aspects of retirement plans, not just investments. They know that strategic plan design, fees, financial wellness and fiduciary risk are equally important. They also understand that the ultimate purpose of a participant-directed defined contribution plan is to put employees on track for a secure retirement while minimizing the employer’s risk profile. Advisors who aren’t conversant with best practices across all these elements and don’t understand this purpose can easily undermine a plan’s long-term success and diminish your employees’ retirement prospects.
So How Do You Know If Your Retirement Advisor Is Good?
The short answer is that good advisors understand and improve overall plan success. They make plans demonstrably better by focusing on the five critical components of effective retirement plans: design, vendor management, retirement readiness, fiduciary risk and investments.
Additionally, good advisors typically possess these characteristics:
Fiduciary, fee-based firm
Not all advisers are created equal. You want to work with an adviser who will operate as a fiduciary, either as a 3(21) or 3(38) adviser, which means they assume some or all of the responsibility for the plan investments, thereby reducing your company’s risk. Fiduciary advisers are required to act in the best interests of plan participants, not their own. Finally, they detail all of their services and fees in an advisory agreement that you can review before you hire them.
You want to work with an adviser who has extensive experience working not only with institutional retirement plans but also with plans of a size similar to yours, and ideally in the same industry. They should also be competent in all the areas you wish to focus on to make your plan more effective. To help in your assessment, ask for specific examples that demonstrate how the adviser has improved the operations and outcomes for their other institutional retirement clients.
Relevant scope of services and focus
It goes without saying that when you hire a third-party professional, you want to make sure that they can deliver the services you need to achieve your objectives. In the case of hiring a retirement adviser, that means understanding that many “old school” advisers, especially those used to working with individual clients, focus almost exclusively on investments, while good retirement plan-focused advisers focus on all the elements of a successful plan. Top ERISA-focused advisers regularly measure and track key plan health indicators and proactively report them back to the plan committee. Additionally, you’ll want to find out if the adviser works alone or as part of a larger team. Firms that work in teams tend to have an in-house staff of dedicated specialists who assist with employee education, compliance, investments, and plan design issues.
Well-defined client-service delivery protocols
It can be a frustrating experience if your advisory firm doesn’t have well-defined client-service protocols. This runs the gamut from being able to meet report-delivery standards to returning phone calls and emails in a timely fashion to being able to adjust on the fly in the case of unforeseen circumstances. The best professional service firms use enterprise-wide client relationship management (CRM) software to make sure they deliver on all of their service promises and to manage the overall client experience. Good advisory firms establish overall plan goals, regularly survey clients, and assign a senior member of the firm to serve as an executive liaison, someone you can call to voice concerns over service issues or unmet expectations.
You want to make sure the advisory fees you’re paying are competitive. While sending out a request for proposal (RFP) or using third-party benchmarking data is a good place to start, you will want to include questions that require the bidding advisory firm to describe all of the types of compensation they might receive from your plan. There is a growing trend for some advisory firms to offer low-cost advisory fees with the intention of cross-selling other proprietary services like managed accounts, custom models, or capturing your employees’ plan rollovers. When you review these fees, make sure to explore these other types of financial arrangements so that you are comparing apples to apples.
Many advisers use off-the-shelf investment-monitoring reports built by third-party providers. Although convenient and inexpensive, these reports tend to use simple pass/fail scoring systems that may force a plan sponsor to make frequent changes to the investment lineup to stay in compliance. Also, these third-party report providers rarely cover other essential topics like target-date funds and stable-value due diligence reports, or overall plan health and benchmarking reports. That’s why the best institutional retirement-consulting firms use their own reports and provide their own in-house investment teams.
Right fit and a focus on making the plan better
Arguably the most qualitative aspect of hiring a good adviser but it may also be the most important. You want to hire someone that you like and get along with. You want to know that the adviser truly cares about you and your plan participants and isn’t just punching a clock. The marketplace of competent advisers is large enough to usually offer a few good choices. The adviser you select should also provide an approach for measuring (not just benchmarking) the effectiveness of your plan. In short, are they going to help put your employees on track for a secure retirement, and will they reduce your company’s risk profile? If yes, you’ve potentially identified a good adviser. If no, keep looking.
The bottom line is that a good, experienced ERISA-focused advisor (and their team) can help you measure your plan, identify opportunities for improvement and put together a plan to achieve specific, concrete goals within a short time period, usually twelve to twenty-four months. Depending on where you start, you can often see dramatic improvements in your participants’ retirement readiness and a decrease in your company’s risk exposure.
Secure retirements begin with a sound and effective plan. To discover how your plan measures up, request your complimentary Plan Health SmartCard Report.*
* Your complimentary analysis is not contingent on using any of Cerity Partners’ services.
Cerity Partners LLC (“Cerity Partners”) is a registered investment adviser with offices in California, Colorado, Illinois, Ohio, Michigan, New York, Massachusetts, and Texas. Registration of an Investment Advisor does not imply any level of skill or training. This commentary is limited to general information, and should not be construed as personal investment advice. There is no guarantee that the views and opinions expressed in this piece will come to pass. The information is deemed reliable as of the date of this commentary, but is not guaranteed, and subject to change without notice. It should not be considered as an offer to sell or a solicitation of an offer to buy any security.