The 4 Types of 401(k) Advisers
posted by Fisher 401(k) August 22, 2018
Choosing a retirement adviser might be the most important decision that you can make for your plan and is often a great place to begin if you’re looking to start a 401(k). There are four major types of 401(k) advisers that you are likely to come across. Each offers a different level of service and fiduciary protection, which refers to the legal obligation they do or do not have to help employers make 401(k) plan decisions that are in the best interests of their employees. Here’s a breakdown of the four types of 401(k) advisers you’ll find, and what makes each one unique.
1. Robo Advisers and Payroll Companies: A Basic, Low-Cost 401(k)
A small, but growing, portion of the 401(k) market is made up of advisers who offer basic self-directed 401(k) plans to small businesses. While the two main types of advisers in this category—robo advisers and payroll companies—have different methods, their goal is the same: Low-cost, no-frills small business 401(k). Robo advisers achieve this with advanced technology for employers with a DIY attitude, while payroll companies offer a small selection of standardized plans as added services for their existing customers.
Level of Service
Generally speaking, the plans you’ll find from these advisers will be designed around simplicity and self-service. Catering mainly to companies starting a 401(k) for the first time and smaller businesses, advisers in this category offer only the most basic services at entry-level prices, with customized service for the employer or employees sometimes available at an extra cost.
• Tech-driven: Robo advisers utilize technology to make 401(k) management easier for employers who don’t have large teams and who are comfortable using the web to manage their company’s 401(k) plan. Additionally, robo advisers utilize advanced algorithms to make many of their recommendations and help employees choose an investment strategy.
• Standardized plan options: Another way these advisers simplify 401(k) is by offering a small set of plan options for employers who don’t want much in the way of flexibility or customization, but would prefer a simple menu of out-of-the-box choices.
Varies. Robo advisers can sometimes offer some amount of fiduciary support, while many payroll advisers make fiduciary protection available for an extra fee.
2. Product-Focused Advisers: Annuities, Mutual Funds, and High-Commission Products
Some 401(k) advisers specialize in certain aspects of the financial industry and offer retirement plan services as an extension of their main business. In this category of adviser, you’ll find large brokers, insurance companies, and mutual fund organizations. Depending on which type of company you meet, their retirement plans will take a different, product-driven shape that may be difficult to compare to other small business 401(k) plans.
Level of Service
Similar to robo advisers and payroll companies, these product-focused 401(k) advisers often default to web-based self-service for employers to manage their plans. Your primary contact will likely be someone who manages less than 10 company 401(k) plans, with most of their time spent serving other types of clients or managing other products. Brokers may be able to sell a wide variety of 401(k) plan options from different primary advisers. Mutual fund companies often reserve hands-on 401(k) service for larger employers, offering small companies limited options with less support.
• Affiliate relationships: Especially in the case of insurance companies who offer 401(k) plans, affiliate companies (third-party partners the adviser outsources services to) may end up providing much of the day-to-day administration support on the account. For example, the adviser may be unable to provide administrative support, so they offer outsourced services through another company. That might result in complex pricing models.
• Proprietary investment products: Insurance companies often focus on complex insurance products like annuities, while mutual fund companies are likely to focus on their own mutual funds over other investment options. Proprietary investment products can make it difficult to compare plans from different advisers.
Limited. Most product-focused advisers can offer some limited fiduciary protection in the way of the administrative elements of a 401(k) plan. Some insurance companies and mutual fund organizations will be able to offer increased fiduciary support through an affiliate and/or for an additional fee.
3. “Not-So-Local” Advisers: A 401(k) with a National Name
In communities around the nation, there are local firms who offer 401(k) services. Some (but not all) of these firms are registered investment advisers, and many of them have ties with larger, national financial companies. Often, these advisers only do a small amount of 401(k) business, with much of their efforts focused elsewhere.
Level of Service
Many local financial advisers base their business on serving high net worth individuals. As such, their resources are usually focused on wealth management and investment advice for individual clients. Some advisers in this category who are registered investment advisers may be skilled when it comes to providing individual advice, but they’re less likely to be experienced when establishing and maintaining an effective 401(k) plan for a business. Additionally, the choices they offer can sometimes be limited to plans and investment products offered by the firm’s larger parent companies.
• Local teams with limited 401(k) focus: Because you’ll find these firms in your local community, you’ll have local professionals you can meet with in person and work with directly instead of relying on web-based self-service dashboards. But the broad focus of these professionals—who primarily serve high wealth individuals with other kinds of investment products—also means these firms may have limited resources to dedicate to your company’s 401(k) needs.
Varies. Some local firms may function as full 3(38) Investment Managers, while others may be more limited in their fiduciary support.
4. Registered Investment Advisers: Fiduciary Services with Employer and Employee Support
Fisher Investments 401(k) Solutions fits into the final category of 401(k) adviser: National registered investment advisers who focus strictly on 401(k). We specialize only in providing 401(k) services to small to mid-sized employers and their employees, which means we have no other financial products to upsell. Because we’re independent, our plans are not sold by brokers or other advisers, which means registered investment advisers like Fisher may not have been included in any adviser reviews you’ve performed in the past.
Level of Service
Registered investment advisers who specialize in 401(k) support build their entire business around helping companies manage 401(k) plans. Our Retirement Counselors and 401(k) Service Team are fully dedicated to serving 401(k) plan managers, offering a direct approach to everything from customizing plans to investment selection and monitoring.
• 401(k) flexibility: Our first priority is helping you and your employees meet your retirement goals. That means we offer a wide variety of plan types and options to help fit to your exact needs rather than offering standardized options.
• Dedicated employee support: Our retirement specialists work with your employees on-site during enrollment, and offer one-on-one meetings with any participants who want help aligning their savings and investment strategies with their unique goals for retirement.
• Ongoing administrative support: Because we’re 401(k) specialists, we’re dedicated to helping employers administer their plans on an ongoing basis. We work with employers to manage the day-to-day business of the plan, to help prepare for compliance tests, and to make adjustments as necessary.
Fisher takes on full 3(38) fiduciary liability for selecting and monitoring funds in your plan.
The marketplace for small business 401(k) companies is diverse, but there’s an adviser out there for every company. Visit the Fisher Investments 401(k) Solutions resource library to compare 401(k) advisers and find the right fit for your business.