The relationship with a financial adviser is key for retirement and the financial health of a plan sponsor’s employees. Advisers should become more knowledgeable not only about retirement, but also about other aspects of retirement planning.
It is important to ask the right questions from the get go and make everything clear before you start a partnership. This way you could keep your business protected and allow employees afford a good standard of life after work.
Being a plan sponsor means being a plan fiduciary unless this role is assigned to a third-party specialist or adviser. The first question to ask is whether the adviser acts as a 3(38) fiduciary, 3(16) or 3(21). In the first case 3(38) a fiduciary can, at their discretion, control the plan’s assets, which means he can select, monitor and replace investments for the plan. If the adviser has a 3(21) status, then he has the ability to administer the plan, render investment advice in exchange for compensation, which might include plan trustee. And if the adviser acts as a 3(16) fiduciary, then he has a responsibility to ensure that the plan is created and managed in accordance with ERISA requirements, and if there’s no administrator, then you as a plan sponsor take on this role automatically.
Plan sponsors should evaluate their relationship with an adviser by asking some “culturally uncomfortable” but very important questions as well. You should ask about your adviser’s compensation. Although such questions may sound a little bit straightforward, they are really crucial for a plan sponsor, because fiduciaries should be aware of the pricing model of their service provider or adviser.
Be wary of an adviser that doesn’t offer a transparent compensation structure, financial irregularities need to be avoided at all costs. Do your due diligence and make sure your adviser can fully explain any fees satisfactorily. Always be prepared to ask uncomfortable questions.
It’s also important to ask advisers what they’re going to do and how exactly they plan to give participants advice. By asking such questions you will make sure that the adviser is going to spend time with employees educating them and not just give them a computer-generated report without an explanation. Advisors should provide a disclosure and make sure that it is easy to understand, so each participant can see where their money is invested into and estimate potential risks of their investment choice.
Lack of participants’ education can put a plan sponsor at a risk of potential liability and decrease employees’ productivity. So you should ask your adviser about this, or otherwise the responsibility of the plan participants’ education will be put on your shoulders.
Your financial adviser could be a professional in your retirement plan management, but there are some aspects that need to be additionally monitored if you want to make sure you’re on the same page and that your employees get the best advice and your relations are as transparent as possible. To achieve that, you need to ask the right questions at the right time.
With RiXtrema software, advisers can have the most transparent relationship with plan sponsors by providing clear and understandable reports to their employees. You can always request a quick demo of one of our products by scheduling a call with us