The Top Five Questions to Ask Your Retirement Plan Advisor

Matthew J. Haywood

Matthew J. Haywood

An employer sponsored retirement plan provides a great benefit for every company, serving as an added perk for attracting and retaining good talent. It’s also an immense responsibility, and if not managed properly, can become a liability. That’s why it’s important to work with an advisor who has your best interest at heart and has the experience you need to oversee your plan. If you are not working with the right advisor, you could be putting yourself at risk.

We understand that tackling this subject may be unknown territory for you. Yet knowing what to look for and what to ask will help you navigate the conversation with your advisor. In my years of experience as a retirement plan advisor, I’ve found that there are five key questions everyone should ask of their existing advisor, and any that you may interview as part of the process. These are the questions that can help put you on the right path:

  1. Are you acting as a Fiduciary? If so, specifically what type and where can I find that in writing?

    In today’s financial world, the word Fiduciary is being thrown around like confetti at the Super Bowl. When asked, many advisors will say they are acting as a fiduciary. While it’s great that they’ve answered the question in the affirmative, there’s actually more to the story. You’ll want to ask the next question to uncover what type of fiduciary services they’re providing.  There are two main types of investment advisor fiduciaries with varying levels of responsibility for your plan:

    • 3(21) Fiduciary: Retirement Plan Advisor will recommend specific investments to be offered as investment options
    • 3(38) Fiduciary: Retirement Plan Advisor will evaluate and prudently designate the specific investments to be offered as investment options

    Once you have the answer, ask your advisor to show you his or her fiduciary services in writing, outlining what they’ll be doing in exchange for the fees you are paying. Ultimately, the services must justify their fees.

  2. Can you work with any Recordkeeper and Third Party Administrator or do you have limitations?

    Every retirement plan, and retirement plan provider, is different. Every retirement plan should have the opportunity to use the most cost effective and appropriate service provider for their plan. Yet the reality is that many advisors and providers are limited in which recordkeepers they can work with. Whether it is $1MM to $5MM or $200MM to $1B, every provider has a target market, and you may not be part of that provider’s target market. You want to ensure that you’re working with the provider that’s most appropriate for YOUR plan size, and that means working with an advisor who can match you with the right provider. Chances are that if there are limitations, you may be paying too much for your plan (or paying for services you don’t need) because that advisor is trying to make your plan work within a small number of options at his or her disposal.

  3. How many retirement plans do you personally manage?

    If your plan advisor doesn’t personally manage over 10 retirement plans, they may be putting you at risk. That doesn’t mean he or she isn’t working hard for you and acting solely in the best interest of plan participants, it simply means that there’s a good chance that the advisor will run into issues that are beyond his or her knowledge and experience. Managing a retirement plan requires a much different skillset and knowledge base than managing someone’s personal assets. The list of rules and regulations that must be followed for proper compliance of an ERISA Retirement Plan is exhaustive. If your advisor isn’t living in this world of ERISA compliance every single day, it is easy for problems to fall through the cracks.

    In addition, advisors who focus on retirement plans, such as the team we have here at Krilogy, have greater access to the recordkeepers. This allows us to get answers and information for you more quickly because we have that direct contact for our client’s plans.

  4. Can we use any fund company on the investment line-up or are there limitations?

    It is the responsibility of the plan sponsor and fiduciary to ensure that the investments offered in the plan are the most appropriate options for the plan participants. If your advisor can only work with certain fund companies, this may be difficult as you’re limiting the options for your plan. A fiduciary must act solely in the interest of the plan participants. A fiduciary is not someone who acts solely in the interest of plan participants within certain limitations set by the advisor’s investment firm. It is best to work with an advisor who can use true open architecture, which allows the advisor to use any investment fund company and any investment fund to create the appropriate fund line-up for your plan.

  5. What are your services and how much are you getting paid?

    When you hire a retirement plan advisor, you should bind into an agreement for services rendered for their fee – and this agreement should be in writing. You want to know exactly what they’re going to be doing for their fee, and what that fee is. The advisor fee can increase or decrease with services provided to your plan. The list of services should be reviewed and benchmarked every year to ensure that the services are being performed. If an advisor is not living up to the service commitments, you should renegotiate the fee or find a new advisor that will live up to the commitment.

As a plan sponsor, it’s your responsibility to ask these questions as they will uncover any conflict of interest and show your advisor that you mean business –you have done your homework. It also expresses that you consider this to be a very important part of your business, and you expect the advisor to treat it with that same level of importance. Through this process, you’ll also demonstrate your expectations regarding fees, services to be rendered, and the value the advisor will be providing. That expectation involves open, ongoing, transparent communications, and the assurance that your advisor will always be acting in your best interest.

The Krilogy Retirement Plan Advisors’ team welcomes the opportunity to put a second set of eyes on your company’s retirement plan. We’ll help you identify any inconsistencies, limitations, or problems you may be facing, and uncover what options may be appropriate for your situation. We know the intricacies of the regulations, have experience in setting up and managing retirement plans, and can arm you with the knowledge you need to make wise decisions concerning your plan. You gain clarity, and the responsibility transforms from burden to benefit.