Retirement Solutions Now Header

AdvisorNews - October 2015

Four Signs an Advisor Will Grow His Business This Year

Jul 21, 2015

Maybe it’s because most advisors are salesmen at heart, but I rarely find an advisor who is not trying to grow his business. Despite the assets under management or number of clients advisors serve, most are always striving to build something bigger. Client demographics, technology, and marketing have changed so much in the past 20 years that many veteran advisors are confused and frustrated today. Attempting to grow their businesses, they often misdirect energy on tactics that waste time and money. Through the process of working with hundreds of advisors, I have identified four common traits of advisors who are growing their practices year after year, traits that seem absent in advisors who are losing ground.

He Believes in His Value

You can tell right away when you speak with an advisor who honestly believes that he gives his clients more in value than he takes in compensation. His worldview is that of abundance, and he knows that if he loses a client, there are plenty other folks out there who would benefit from his services. He says things like “I only take on new clients who I can help,” or “I can only serve 100 families, so I use discretion when bringing on someone new.” This type of advisor works with optimism in his referral process and calm confidence in his value. His concerns typically are surrounding business efficiencies and finding referrals to high net worth clients. Believing in his value helps him attract new clients and close business if the client is a good fit.

He Invests in Technology and Marketing

In working with various diverse groups of advisors, I have found that all advisors who are growing their businesses invest significantly in technology and marketing. Of advisors who are increasing AUM, over half use RedTail CRM, eMoney and FMG Suite. The correlation makes me wonder about causation. Did they grow their business because of their technology? Or, are they able to invest because their revenue is consistently climbing? I suspect they are growing their business because they have a systematic and disciplined approach to investing in their technology and marketing. Some cite numbers, such as 3% of revenue earmarked for marketing efforts. These investments result in more efficient and productive business models and make finding new clients easy. You would never attempt to run a marathon without food and water, yet trying to grow your business without fueling your technology and marketing engines yields the same miserable and painful result.

He is Comfortable With “Good Enough”

The greatest threat to effective marketing is perfectionism. I have seen so many advisors who never launch their website because they can’t get comfortable with each word on the site. They fail to see the credibility hit they take by not having a website at all. The same is true for perfectionists when it comes to blogging. In attempts to increase blog accuracy, advisors conduct painful rounds of edits to their blog posts, decreasing their posting frequency and killing their enjoyment of the process. What they don’t realize is that most readers don’t care about detailed facts and figures. People read your blog because they want to hear your general opinion on a topic. Blogs are a place to share ideas, a living breathing conversation, not a scientific journal. The goal is to deliver insightful ideas with a personal touch. Advisors who are growing their business stick to a schedule and get their content out no matter what. The most successful advisors recognize the power of consistent marketing and make arrangements by delegating or outsourcing, so it happens on a regular basis.

He Ponders the Client Experience

I love it when I am talking to an advisor, and he uses language describing how his clients experience the services, marketing, and communication from his firm. He says things like “When my clients sit down at their computers, they have 30 or so marketing emails. I want ours to feel different.” It shows that he has taken the time and effort to visualize how his clients spend their day and is sensitive to their plight. How do they feel when they receive a communication from him? Is his firm’s technology easy for them to use? Does it solve problems that concern them? When I hear an advisor speak in a way that shows he has visualized his clients' lives, I know he is making the most of his firm’s client experience. There is no substitute from pondering what your clients value and how to make their lives easier.

Most advisors long for continued, sustainable growth year over year. They want to serve more clients, grow their firm, and create a lasting legacy. At the same time, they worry that service levels for existing clients may suffer, and they don’t want to work more hours. I believe the trick to accomplishing this lies within embracing technologies in client service and marketing. Then, by changing your marketing mindset from “advertising” to “helping people find you when they need you most.” By truly understanding your clients and prospects, you can provide solutions and services they value. With disciplined marketing efforts, you will consistently reach clients you can help to guarantee you will serve more of them each and every year.






Impact of the DOL’s Fiduciary Proposal on Participant Investment Advice

By Fred Reish, Bruce Ashton, Brad Campbell, Joan Neri and Josh Waldbeser

This paper explains the basis for our conclusions about the impact on the investment recommendations to participants of the Department of Labor’s (DOL) proposal to amend the fiduciary investment advice regulation and to establish a new “Best Interest Contract” Exemption (BICE). BICE is a prohibited transaction (PT) exemption that would permit financial institutions to receive variable and indirect compensation based on advisor recommendations.

The DOL proposal would significantly impact broker-dealers, where their affiliated advisors assist participants with investment decisions. When we refer to “affiliated advisors,” we mean both a broker-dealer’s registered representatives and investment advisor representatives where the firm is dual-registered.

As a word of caution, the DOL’s proposal is just that . . . a proposal. It appears that the DOL may be willing to make significant changes to some of the provisions (and particularly to the BICE conditions).

Conclusion No. 1: The proposal expands the definition of fiduciary investment advice by providing that a “recommendation” to a participant would trigger fiduciary status. A “recommendation” is a communication that would reasonably be viewed as a “suggestion” that a participant engage in or refrain from a particular course of action. Under this standard, many common sales and investment education practices would constitute fiduciary advice.

This standard will likely make it challenging for advisors to avoid fiduciary status when assisting participants, as most communications could be viewed as suggestions. Also, the proposal does not recognize any “carve-out” for sales transactions with participants. An advisor who “recommends” an investment to participants could not avoid fiduciary status by disclosing that he or she is not offering individualized advice, but rather, is just selling a product.

Broker-dealers should recognize that this is a change from the current DOL regulation defining fiduciary investment advice, which requires a mutual understanding that individualized advice is being offered. Another difference is that, unlike the current DOL rule, the proposal does not include a “regular basis” requirement – under the proposal, even one conversation could trigger fiduciary status. (However, fiduciary status still requires at least some compensation for the advice, but any payment from any source, direct or indirect, would likely satisfy that requirement.)

The proposal recognizes a carve-out for investment education (discussed below), but it is narrow and does not cover some communications previously regarded as merely educational.

Conclusion No. 2: Advisors could provide generalized investment education to participants without triggering fiduciary status and prohibited transaction (PT) concerns, if they avoid “recommendations.” But this will be challenging – under the proposal, referencing available investment options would likely be a fiduciary act.

The proposal recognizes a carve-out from the fiduciary definition for certain types of general information and educational materials. However, broker-dealers should be aware that the investment education carve-out is narrowly crafted, and should take steps to ensure that any investment information or materials provided to participants by their advisors do not cross the line into advice (if fiduciary advice is not intended).

In Interpretive Bulletin 96-1, the DOL identified four categories of information and materials that do not constitute advice, but instead are non-fiduciary investment education: (1) plan information, (2) general financial and investment information, (3) asset allocation models and (4) interactive investment materials. The investment education carve-out in the proposal includes these same categories, but it requires that materials cannot include or identify any of the investment alternatives available to participants. Educational materials also could not contain investment recommendations, even “in combination with other materials.”

In reviewing information and materials that are intended to meet the education carve-out, broker-dealers need to ensure they are “investment-neutral.” For example, information about asset allocation models may not refer to specific investments, and other materials concurrently furnished by the advisor should not refer to investments available within the asset classes described in the models.  

Conclusion No. 3: Broker-dealers receive 12b-1 fees and other variable/indirect compensation from investment products they sell. Advisors who recommend investments to participants influence this compensation. This would constitute a “fiduciary self-dealing” PT under the proposal, and exemptive relief is needed.

Where providing fiduciary advice to participants, an advisor cannot (1) recommend investments that would cause the advisor to receive additional compensation without violating Section 406(b)(1) of ERISA, which prohibits a fiduciary from dealing with plan assets for his own interest or account; or (2) receive compensation from the recommended investments, which would also be a PT under Section 406(b)(3). The same rules extend to compensation paid to affiliates or other parties in which the advisor has an interest that could reasonably affect the advisor’s judgment.

Therefore, where an affiliated advisor recommends investments to a participant, ERISA prohibits the broker-dealer from receiving variable/indirect compensation on the basis of the recommendations, unless an exemption for the resulting PT is satisfied. In the context of participant advice, there are a few options available (discussed below).

We should also point out that PTs can be avoided in the first place by utilizing a flat-fee arrangement and offsetting the flat fee dollar-for-dollar by any indirect compensation received, such that the broker-dealer’s total compensation is not being influenced by the recommendations. This model is permitted under Advisory Opinion 97-15A, the “Frost Bank” opinion.

Conclusion No. 4: BICE would provide an exemption permitting broker-dealers to receive variable and indirect compensation based on their advisors’ non-discretionary recommendations. However, BICE imposes disclosure and other requirements that may be practically impossible, or prohibitively expensive, to comply with.

BICE would permit a broker-dealer’s receipt of “otherwise prohibited compensation,” but the exemption would impose conditions that the broker-dealer may not be willing or able to satisfy. Some of the key requirements of BICE include:

  • A three-way written contract between the participant, advisor and broker-dealer, entered into before any recommendations are given, requiring the advisor to act in the participant’s best interests (and without regard to the interests of the advisor or broker-dealer). The contract would have to include various representations, disclosures about fees and proprietary funds, and warranties about a number of issues, including that the broker-dealer has implemented policies and procedures to mitigate conflicts of interest and ensure that advisors are observing impartial conduct standards.
  • The proposal says that the warranties about conflicts of interest do not prevent the broker-dealer, advisor or affiliates from receiving variable compensation so long as the compensation does not encourage advice that runs counter to the investor’s “best interest.” It adds that differential compensation based on “neutral factors,” such as the difference in time and the analysis needed to give prudent advice, would be permissible. Avoiding a “best interest” violation and coming up with “neutral factors” will clearly be challenging.
  • Notice of a publicly available website detailing all direct and indirect compensation payable to the advisor, broker-dealer, etc. with respect to assets that could be purchased by plans and IRAs, over the previous year. In the context of IRAs, this could include an enormous amount of information.
  • Additional disclosures about estimated future costs (for each sale, utilizing estimates of future investment performance), and annual disclosures regarding investment transactions and compensation.
  • Disclosures to the DOL as to reliance on BICE, and significant recordkeeping requirements to demonstrate compliance.

This is a broad summary and not an exhaustive list. However, it illustrates the level of practical challenges and costs that BICE would create, particularly regarding the numerous and detailed participant (and public) disclosures required. Even the written contract itself may be problematic, because many participants may not wish to sign a contract before deciding whether they want to work with the advisor. Due to this concern, the DOL may relax the contract timing requirement in the final regulation.

Broker-dealers that receive variable/indirect compensation on the basis of participant advice provided by affiliated advisors will need to evaluate the risks and costs associated with BICE versus other available exemptions. Also, BICE does not cover discretionary account management, so broker-dealers whose advisors provide such services will need to look elsewhere for relief. Finally, see our Insurance Products Alert regarding the application of PTE 84-24 to sales of insurance products to participants.

Because of the cost and complexity of complying with the proposed exemptions, at least some broker-dealers (who do not have proprietary products managed by affiliates) are considering moving to a level fee model.

Conclusion No. 5:  Broker-dealers and advisors could instead rely on the Pension Protection Act (PPA) exemptions for non-discretionary participant advice, but this provides limited relief and compliance is challenging.

As an alternative to BICE, broker-dealers could rely on the exemption for participant advice under Section 408(b)(14) of ERISA that was added by the Pension Protection Act of 2006 (PPA). However, the PPA exemption also creates administrative challenges and additional costs.

The PPA exemption provides relief for (1) “flat-fee” models, where the broker-dealer receives variable compensation but the advisor’s remains flat; and (2) computer-based advice models which are certified by an independent investment expert. Under both models, an annual compliance audit, certain participant disclosures and recordkeeping requirements are imposed, along with certain other conditions. Also, no relief for discretionary investment management is available. In short, both models are restrictive and will generate additional costs and administrative burdens. As a result, the PPA exemption is not widely relied upon currently. Following the proposal, broker-dealers may wish to re-examine it as a possibility, as it may provide a more practicable solution than BICE in some cases.

Conclusion No. 6: For participant non-discretionary investment advice and discretionary management, advisors could use a third-party computer-based asset allocation service – permitted in the DOL’s “SunAmerica” advisory opinion – since the advisor wouldn’t be influencing the broker-dealer’s compensation through its own recommendations.

Broker-dealers may choose to consider other approaches to avoid self-dealing PTs in the first place. In addition to “flat-fee-only” and “fee-offset” models, the SunAmerica Advisory Opinion provides that asset allocation services offered to participants (involving advice and even discretionary management) that are the product of a computer model developed and overseen by an independent financial expert, and subject to certain additional conditions, would allow a service provider (the broker-dealer, in this case) to avoid PTs when receiving variable/indirect compensation from its platform of investment offerings. Because the advisor is not using its fiduciary discretion in a way that could influence the provider’s compensation, no self-dealing occurs. While this model is restrictive and does create expenses and compliance challenges, it may be an appropriate solution for some broker-dealers, particularly since (unlike BICE and the PPA exemption) it offers relief with respect to discretionary account management. The restrictions are significant though, and may be unacceptable to many advisors because their advice would have to be limited to a third party’s computer model “recommendations.”

Closing Thoughts

The proposal will have a significant impact on broker-dealers. It will be difficult for advisors to avoid fiduciary status when assisting participants with investment decisions. Where broker-dealers receive variable/indirect compensation on the basis of advisor recommendations, all of the available PT exemptions are highly nuanced and challenging to satisfy. Otherwise, broker-dealers will need to re-examine their advisors’ practices carefully to ensure that they are providing only investment education, or develop other strategies to avoid PTs.



How Retirement Advisors Really Add Value to 401(k) Plans


Most people believe that the value of the retirement advisor is the ability to enhance returns. But if that were true, there would be no asset allocation because that strategy deliberately reduces returns. The fact is that a well allocated portfolio offers asset preservation at the expense of enhanced returns. There is no conclusive evidence that retirement advisors increase investment returns.


The value of the retirement advisor is far greater than marginal investment returns.


Understanding the real value requires stepping away from the investment itself and focusing on the outcome if the retirement advisor was not in the picture. The answer lies in how different the 401(k) industry would look if there were no retirement advisors:

  • There would be far fewer plans. Of the over 600,000 plans, 90% to 95% would not exist without the efforts of advisors.
  • Participation rates would be lower. Instead of 87% participation, the no-advisor world would have fewer that 25% of eligible employees participating.
  • Diversified investments would be the exception. Stable value and fixed income investments would dominate.


These estimates are not mere speculations but were the facts in the 401(k) marketplace before retirement advisors were active.


With an estimated 5 million businesses still without a retirement plan, it becomes obvious that advisors will continue to play a critical role in achieving a more secure retirement for more workers.


The Retirement Advisor’s Challenge


Providing the value of a secure retirement may appear on the surface to be a simple task. Experienced professionals recognize that this is not the case. Enhancing retirement security requires uncompensated and labor-intensive work that is required before a plan is in effect for an employer and then for each employee.


A successful retirement advisor must overcome the resistance of the employer to increasing employment expenses by offering a retirement plan. The highly visible direct and indirect expense to the employer has to be justified by an altruistic and often illusive long term benefit that employees may or may not value.


Before the typical retirement advisor receives compensation, he/she must also convince employees to participate in the 401(k) and then wait for years for contributions to accumulate to a meaningful level. The effort to convince the employee requires making the case to lower their current standard of living in the hope that this sacrifice will yield a more secure retirement that is often decades in the future.


It is only after overcoming both of these challenges that the retirement security is improved.


Several tools have been developed that streamline the role of the retirement advisor. These include regulatory waivers and exemptions that reduce the employers’ burden as well as incentives and automatic features for employees. On the other hand, there have been regulations and proposals that make the retirement advisor’s job even more difficult.




The retirement advisor faces business risks that are unique. Most serious is the risk of not recovering the cost in time to establish and operate the plan through its formative years. The retirement advisor who establishes the plan and builds participation and contributions is rewarded only as long as the employer remains a client. Unfortunately, such a profitable plan is an attractive target for other advisors, who can offer lower fees since there are no more start-up costs.


This risk pushes retirement advisors to pursue larger employers, where the time for start-up cost recovery is shorter.


The second unique risk is being held responsible for plan losses and failing to comply with regulatory requirements. These liabilities put an additional administrative burden on the retirement advisor that translates to higher operating costs.


This risk increases the fees that must be charged for the retirement advisor to operate profitably.




The trigger for advisors became active in enhancing retirement security was the introduction of compensation programs to fund these activities. These compensation programs funded the activities necessary to start up, retain and improve the 401(k) plans.


Today’s successful compensation programs evolved after other attempts at funding failed:

  • Employer Funded: This is a non-starter because employers could not be convinced to pay an expert to convince them to start a 401(k) plan.
  • Employee Funded: While this might appear to be logical, since the benefit is enjoyed by the employee, it is highly impractical and very costly.
  • Government Funded: This possibility is still under consideration but is unlikely to materialize since Washington has little appetite for additional spending.


The successful funding approach has been to treat the advisor’s compensation as an expense of the retirement plan. This has the added benefit of creating and incentive for the advisor to succeed.


Having solved the funding, the issue of the standard of care now looms large. Market forces have produced an adequate level of care but a significant gap still exists between the best and worst practitioners. Few of the best practitioner take advantage of a superior standard of care and fewer of the worst suffer for being inferior.


The reason is the disparity in the standard of care is the lack of generally accepted quality measures combined with the use of investment returns as a measure of advisors’ value.


The disparity can be resolved by the best advisors adopting a uniform standard of care and using this standard to win business from competitors who cannot operate at that level.




The critical role played by the retirement advisor has not been understood. This failure threatens the retirement security of the 68 million workers with no retirement plan who are primarily employed by small businesses. Instead of focusing on investment returns and lowering expenses, real benefits can be achieved on finding additional ways of funding retirement advisor activities.





Does the DOL’s fiduciary rule favor fee-based brokers?

by Melissa A. Winn

AUG 12, 2015 8:46am ET

SourceMedia's Partner Insights program enables marketers to deliver relevant content and insights directly to the Financial Planning audience via SourceMedia's digital media platforms. Partner Insights content is produced by the marketer. To find out more, contact Jim Callan at This email address is being protected from spambots. You need JavaScript enabled to view it.

There’s a distinction in the benefits industry between fee-based and commission-based benefit advisers, and the DOL’s proposed fiduciary rule favors fee-based brokers and likely would push some commission-based brokers out of the retirement market altogether, says JuIi McNeely, president of the National Association of Insurance and Financial Advisors.

McNeely testified during yesterday’s DOL fiduciary hearings that the proposed rule would have less impact on fee-based advisers and may even bring them new business as commission-based brokers drop out of the market.

“The fee-based advisers win with this proposal,” she said. “They win because they will continue to operate in the manner they always have.”

“The fee-based advisers really seem to be in favor of this proposal,” McNeely told EBA in an interview ahead of her testimony. “In my perspective, they have a chance of gaining something out of this proposal, because it’s likely that some commission-based advisers won’t continue in the retirement market.”

Fee-based advisers, she reiterated in her testimony, “will continue to operate in the same manner as usual. The extra burden is really on the commission-based advisers through the best interest contract exemption.”

Under the proposed regulation and the new Best Interest Contract Exemption (the BIC exemption) advisers would be able to receive commissions, revenue sharing, 12(b)1 fees and some other forms of “conflicted compensation” under stringent conditions. The BIC exemption requires a contract between the adviser, the financial institution and the client in which the financial institution and the adviser commit to a best interests standard requiring that the adviser act with the care, skill, prudence and diligence that a prudent person would exercise.

“Every one of my clients will have to sign a contract under the BIC. In my opinion it’s an unworkable solution and it’s going to be a costly and time-consuming solution. It’s never easy to get people to sign new paperwork, especially something as strongly named as a contract,” she said. “I believe I will have some clients that have no interest in signing it.”

Gregory McShea, general counsel for the advisory firm Janney Montgomery Scott LLC agreed, testifying during the same panel that the DOL’s proposed rule “eliminates investor choice and increases cost.”

“We offer our clients a choice of either working with adviser on a fee-based or commission-based model,” he said, adding that the two legal contracts provide different levels of service.

“As written, the proposal jeopardizes our ability to provide commission-based services to IRA clients when that might be the preferred model for them,” he said.

The other problematic piece about the BIC, she said, is the requirement these contracts be signed before advisers speak about any products.

“We can be educating the client up to a certain point, but as soon as we start speaking about a product, a contract needs to be signed. I think it would be better stated if it were to be signed at the time of sale, if in fact we do have to have a contract,” McNeely said.

The BIC also raises the potential for increased litigation, she testified.

‘Cost of lost advice’

McNeely also testified that the cost to comply with the proposed rule would be significant for advisers and cautioned that whenever costs are incurred “advisers have to pass them on to their clients in some way.”

“It’s also important to note that fee-based advisers work with a lot of wealthy individuals who usually have a high minimum account and most of those wealthy individuals can afford to pay those significant upfront fees, startup fees or planning fees. Smaller accounts of middle-America clients are not going to be able to do that,” she said.

“The bigger cost is the lost cost of advice,” McNeely said. “If somebody has a $5,000 balance in a 401(k) from a former employer and they don’t have somebody to talk to and get advice from, they likely will cash it out. That’s a huge cost with the penalties, the taxes, and now the person has no assets saved for retirement. There’s a significant cost for the loss of advice on those smaller accounts.”

Overall, the DOL’s proposed rule “will result in fewer employer plans, fewer participants in employer accounts and lower savings. I don’t think that’s what the Department of Labor has intended this rule to do. Their intention was to protect consumers, especially those middle-America consumers, and this will be counterproductive,” McNeely said.





The Impact of the 401(k) Court Ruling on Advisor

By Roger Wohlner AAA |  

The recent unanimous decision by the Supreme Court in Tibble vs. Edison International has been called a game changer for retirement plan sponsors and for the financial advisors they utilize for advice. The case centered around the utility’s decision to offer the more expensive retail share classes of three funds in its 401(k) plan and the decision to continue to do so many years later. The Supreme Court overturned rulings made by lower courts that the plan sponsor’s liability had passed a six year statute of limitations. They essentially asserted that plan sponsors, and by default their investment advisors, have an ongoing duty to monitor the investment options offered to participants.

Retail vs. Institutional

The movement towards offering the best share classes available in 401(k) plans has accelerated in recent years with the new reporting requirements for plan sponsors to their participants regarding plan investment costs. Frankly, there is no excuse not to offer the lowest cost share class available to a given plan other than the need for advisors or other service providers to be compensated. (For more, see: 401(k) Risks Advisors Should Know About.)

Certainly not every 401(k) plan has access to institutional shares. Some funds may not even offer them. However many funds offer multiple share classes where often the difference lies in the expense ratio. Included in the expense ratio are 12b-1 fees and other forms of revenue sharing that might be offered. Advisors who bury their fees in the plan costs paid by participants may want to rethink their compensation structure and perhaps look to move to a more transparent method such as fixed fees.

The Advisor’s Role

An investment advisor's role in a plan is a fiduciary. Most advisors serve as co-fiduciaries in that they provide advice to the plan sponsor’s investment committee with the sponsor making the final decisions regarding investment changes, provider changes and the like. As a co-fiduciary advisors have an obligation to ensure that they make the plan sponsor aware as to whether the plan offers the lowest cost share class of a given fund available to the plan. Factors might include the size of the plan, average account balance per participant and other factors. Cost can also be a factor in the decision to terminate a fund in favor of a lower cost option within the same asset class. (For more, see: What the DoL’s Fiduciary Policy Means for Advisors.)

Process, Process, Process

The financial advisor should help the plan sponsor to institute a process to run the plan. In fact, having an ongoing process to monitor the plan’s investments and related issues would seem to be at the heart of this ruling. A documented process for managing the plan and following that process has long been touted as one of the top things a plan sponsor can do to mitigate their fiduciary liability. Instituting and managing this process is a key reason why sponsors hire an advisor in the first place. (For more, see: Meeting Your Fiduciary Responsibility.)

An Investment Policy Statement (IPS) that serves as a business plan for the plan is a vital first step. The IPS should specify items such as:

  • The plan’s overall investment philosophy and objectives.
  • Who is responsible for selecting and monitoring the plan’s investments.
  • The asset classes that will be offered and why those asset classes were selected.
  • The process and criteria for monitoring the investments offered by the plan including the criteria that would result in the replacement of an investment option.
  • The frequency of formal plan reviews and investment committee meetings.

Duty to Monitor

The crux of the Supreme Court decision is that plan sponsors have an ongoing duty to monitor investment options offered to plan participants regardless of how long the options have been included in the plan. At the very least this underscores the value of a financial advisor who is experienced in working with 401(k) plan sponsors. (For more, see: New 2015 Contribution Limits: Advisors Take Heed.)

Those plan sponsors who have not yet engaged the services of an investment consultant should certainly be motivated to do so in the wake of this decision and the Department of Labor's (DOL) emphasis on transparency and disclosure for plans. Plan sponsors would rather spend their time doing what they do best, running their company or their professional practice. While the benefits departments of larger organizations may have the in-house expertise, many smaller and mid-sized organizations do not and the services of a qualified advisor to retirement plans is especially vital to them.

Monitoring Service Providers

In addition to monitoring investment performance and expenses it is the responsibility of the plan sponsor to monitor the quality and costs of all service providers such as the plan administrator, the custodian or the bundled provider platform if the plan uses one. (For more, see: Ways to Cut 401(k) Expenses.)

A knowledgeable advisor can be instrumental in assisting the plan sponsor in performing this due diligence and in conducting a search for a replacement if needed. In fact many investment consultants to retirement plans routinely prepare requests for proposals (RFPs) for their plan sponsor clients in connection with these provider searches as needed. Additionally, a knowledgeable advisor will have the capability to benchmark these service providers and help the plan sponsor seek cost reductions. These might take the form of moving the plan to lower cost share classes or perhaps in asking for reductions in the amount of revenue sharing that accrues to the plan provider.

Advisor vs. Sales Person

Many brokers and registered reps will sell 401(k) plans offered by insurance companies or brokers. While they do generally offer services to the plan sponsors these reps often do not serve in a fiduciary capacity. The recent Supreme Court decision underscores the need for plans sponsors to engage with advisors who truly provide advice and who can help them meet their fiduciary obligations to their employees. (For more, see: How to Include ETFs in a Client's 401(k).)

Opportunity for Advisors

Financial advisors who serve 401(k) plan sponsors should see even more demand for their services as the pressure to offer top-notch, low cost investment choices to plan participants increases in the wake of this decision and others. This is not, however, an area for dabblers. If you are looking to enter this arena it is best to be sure that you know what you are doing.

The Bottom Line

The recent unanimous Supreme Court ruling in Tibble vs. Edison underscores the responsibilities of 401(k) plan sponsors to monitor the investment choices offered in their organization’s retirement plan. This responsibility is generally one that is met with the help of a qualified financial advisor to the plan. (For more, see: The Impact of 401(k) Outflows on Advisors.)



Read more:

Follow us: @Investopedia on Twitter