3 Steps to Selecting Your Company's 401(k) Adviser
Your 401(k) adviser should be your most important retirement plan partner—they’re part of the engine that runs and maintains your plan. Here’s how to find a 401(k) adviser you can trust long-term to help you and your employees achieve your retirement goals.
Your 401(k) adviser should be your most important retirement plan partner—they’re part of the engine that runs and maintains your plan. It’s your 401(k) adviser who helps you set up the type of 401(k) plan you want (your plan options and features), select the investment lineup in your plan, and ideally, takes an active role in helping to enroll and educate your management staff and employee base.
The support advisers offer can vary from web-based self-service to a full-service team ready to support your workforce, executives, and 401(k) plan manager. But how much service you’re looking for is ultimately up to you. Here’s how to find a 401(k) adviser you can trust long-term to help you and your employees achieve your retirement goals.
Step 1: Ask the Right Questions for Your Business
Many types of companies provide 401(k) advisory services, including financial institutions, payroll providers, insurance brokers, and wealth management firms. When you’re reviewing advisers, here are some key questions you can ask to determine which is the best fit for your business.
Does the adviser specialize in 401(k) plans?
Some advisers offer 401(k) advisory services as an add-on to their primary service. For example, your payroll provider might also offer 401(k) services. But while it can be tempting to hire someone you already know (an existing service provider, friend, family member, or personal financial adviser), you may get the best value from someone who has experience working with small businesses and 401(k).
Many people who manage a 401(k) could benefit from direct access to an adviser who knows the ins and outs of the plan, offers assistance with the day-to-day administrative upkeep, stays on top of major 401(k) deadlines, and provides some general plan governance. The adviser you choose should manage at least 10 plans, preferably in the small business space, to help ensure the adviser has some experience serving business needs similar to yours
What investment biases does the adviser have?
Some providers may be incentivized by higher commissions to recommend certain investments more than others, even if that recommendation is not in your or your employees’ best interests. If an adviser has certain conflicts, it doesn’t mean you shouldn’t work with them—just make sure you’re aware of what those conflicts are. Request that the adviser share a statement that clearly describes their investment conflicts, and how the adviser ensures that these conflicts will not affect your plan or your employees. And if the adviser charges a flat fee regardless of the investment, it helps indicate that their interests remain aligned with yours.
Gather the following information from the adviser:
- Does the adviser specialize in small business 401(k)?
- Does the adviser manage and/or recommend high-quality investments?
- Will the adviser help manage your legal and regulatory risks?
- Does the adviser provide dedicated support for running the plan?
- Will the adviser provide personalized, one-on-one support for your employees?
Does the adviser provide ongoing and in-person employee education and support?
Helping employees learn about the company 401(k) and establish a personalized retirement saving plan is a key component in gaining high participation rates in the company 401(k). Good advising services for your employees typically includes training and personal support to help your employees learn about investing and get on track to a comfortable retirement.
Step 2: Take a Close Look at Fees
The adviser you’re reviewing should be able to explain their fee structure simply and clearly, while providing transparency into the value and service they bring. Monitoring 401(k) fees is a big part of an employer’s duties in managing a 401(k) plan, because most plan fees are paid by the employees. Plan services for employees are essential, as most employees want professional help selecting their investments.
Monitoring plan costs helps confirm that you and your employees are truly receiving the support you’re paying for.
Depending on your plan’s fee structure, your 401(k) may be charged just one type of fee or any combination of the fees in the chart to the right. To calculate total 401(k) plan costs, your adviser must provide you with clear fee information.
How Your Fees Break Down
Investment: Paid by employees to fund operating expenses, including asset management fees
Administrative & Recordkeeping:
Sometimes paid directly by the employer, but most often deducted from employee accounts, these cover the cost of running the 401(k) plan including recordkeeping and general administration
Fiduciary & Consulting:
Covers the cost of the fund lineup management, investment advice, fiduciary support, and participant enrollment and education
|Quick Comparison of Fiduciary Options|
|Fiduciary Responsibility||3(21) Investment Adviser||3(38) Investment Manager||Other Financials Advisers|
|May educate regarding plan investment options||✓||✓||✓|
|Recommend plan investment options||✓||✓|
|Selects plan investment options||✓|
|Monitors plan investment options||✓|
|Updates plan investment options||✓|
Step 3: Determine How Much Fiduciary Support You Need
Any person or adviser with a fiduciary duty must make decisions on behalf of the 401(k) plan that are in the best interest of your employees.
For most small businesses, the plan fiduciary is often the owner, CEO, CFO, or HR manager. Choosing an adviser who acts as a fiduciary or co-fiduciary to your plan will reduce your personal liability by delegating some of your legal responsibilities. There are three main types of advisers when it comes to fiduciary status, each of which delivers a different level of fiduciary support and protection:
- Full Fiduciary Support: A 3(38) Investment Manager makes investment decisions regarding your plan’s fund options, takes on the business owner’s liability of choosing the investments for your 401(k), and helps ensure that the investment options are low cost with potential for high returns, depending on the temperature of the market.
- Partial Fiduciary Support: A 3(21) Investment Adviser recommends which investments the business owner have in the 401(k). In this case, the business owner or 401(k) plan manager will work with the adviser to select the investments, monitor their performance to confirm they’re quality investments over the long run, and update the investment menu if a better-performing fund is available.
- Little or No Fiduciary Support: Some advisers, like broker/dealers, may offer fiduciary services for an added charge. Additional support for the plan manager and employees is typically limited.
Your Next Steps in the 401(k) Journey
After you’ve found a 401(k) adviser who can be a reliable long-term provider to your business, it’s time to work together to build an investment lineup with plan features that helps put you and your employees on the path to a comfortable retirement. The Fisher 401(k) Resource Library has a number of educational pieces that you can use along your journey to starting a great 401(k) plan for your small business.
Click to learn more about evaluating 401(k) advisers:
Click to learn more about other service providers you’ll partner with:
Click to learn more about 401(k) fees:
About Fisher Investments 401(k) Solutions
Fisher Investments 401(k) Solutions is dedicated to helping small and mid-size businesses. We seek to offer comprehensive 401(k) plan services that are designed to help employees optimize their retirement savings while easing the company’s risk and administrative burden. Founder Ken Fisher authored the Forbes “Portfolio Strategy” column for more than 30 years and believes that every business, regardless of size, should benefit from the Fisher advantage.
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