When I meet with business owners like you and ask them about their 401(k) evaluation process, the answers vary: Some owners are meticulous and evaluate a lot of service providers, but many end up going with the first adviser they talk to or a close family friend. And although their intentions are good, it’s possible that what a family friend is offering isn’t what’s best for you and your employees.
So how would I recommend a business owner go about evaluating a 401(k) provider to truly find the best service for their business? Start by taking a look at these five simple tips. My advice might require a little more work up front, but it’ll likely save you a headache and time in the long-run—because even if you choose to ignore your retirement plan, it won’t ignore you.
1. Create a committee
In addition to the plan fiduciary, it’s a good idea to have a variety of people involved in the decision-making process regarding a company retirement plan, because you’ll probably uncover information you might not have considered on your own. For example, a committee might be comprised of the business owner, CFO, and/or the HR manager. Ideally, the committee would agree on a process: when to begin working, which member will do what work, how often the committee will meet, and when to make a final decision on a new 401(k) provider. Document every major step—it’ll help you stay organized.
2. Stay organized
When I call a business owner I’ve met with in the past, I expect to answer many of the same questions I answered before. I expect it because many of the concerns they had before are still relevant now, so I come prepared with additional information to answer those concerns. But business owners may not realize they’ve asked these questions before, and therefore may not be able to compare different service providers. But taking good notes can help you use a decision grid to lay out the most important operational features, benefits, costs, and any other information related to their service offering in order to help your committee make the right decisions. This grid will come in handy later, when it’s time to make a final decision.
3. Agree on your company needs and goals
Having conversations, holding in-person meetings, or doing some research on a few different service providers will help you better understand your options and perhaps sharpen your goals. If you need a little help deciding on goals, please consider my R.E.T.I.R.Esm framework for ideas. If you know what your company retirement plan goals are, the next step is to think about how you’ll put together the most complete solution to help reach that goal. For example, do you need a new recordkeeper or administrator, or will you continue partnering with your current ones?
4. Ask tough questions, and demand proof
If you’re a business owner and you have not already met with plan providers, now is the time to do so—and they’ll happily come to your office for your convenience. Now is the time to hold their feet to the fire. The adviser tells you he’ll come out and meet with your employees? Great, ask for proof. Think you understand the fees? Ask them to show you where and what they are. Even if you know the adviser, do your due diligence and ask for a copy of their FINRA BrokerCheck or ADV Part 2 Brochure, and look for the disciplinary information section—see if they’ve been fired or disciplined for improper behavior. Don’t be afraid to demand proof.
This goes double for fees. In the face of such overwhelmingly complex information, some business owners may throw their hands up and say, “Just give me the lowest cost solution.” All other factors being equal, cheaper is better since fees reduce the assets that employees and business owners have for retirement. But in my experience, cheaper isn’t usually better. Find out what kind of services you and your employees need, and what kind of services you’d be receiving from each provider. Then compare those services against their costs, and factor that into your final decision.
5. Make a decision
I often end up asking plan sponsors the same basic question: How are you going to make a decision? I recently met with the manager of a distribution company. A death in the management team forced him into managing their retirement plan, a responsibility he didn’t want. We met again and again. And again. Eventually our conversations reached a point where he had no further questions for me, so I asked him how he was going to make a decision. He admitted he had no idea; he had four options on the table, including Fisher 401(k), and despite the stark differences between the options, he couldn’t discern one choice from another.
Yikes. His brain hit such a saturation point with all the information he’d obtained, and he had such little time to devote to making this decision that he could no longer understand the differences between the firms he was evaluating. No committee, no note taker during the meetings, no decision-making process to help him weigh the information in the context of what mattered to him and his employees—all of which would have helped him make a confident decision.
Next time you get a call from a financial adviser like me, think to yourself: Is my business likely to want to evaluate our retirement plan in the next year or two? If so, take down their information and call when the time is right. Collect a file of these contacts, and eliminate any that seem to lack credibility. And before you utter the words “I’m happy with my current plan,” ask yourself if it’s really true—because even if you choose to ignore your retirement plan, it won’t ignore you.