Hiring a fiduciary advisor or consultant

What should a Plan Sponsor look for when hiring an expert to serve as a fiduciary advisor or consultant for a 401(k), 403(b) or Defined Benefit Plan? The following questions should help you determine who has the experience, expertise, credentials and resources to advise your Plan. Don't settle for anyone who can't meet the following minimum requirements.

  • Does the consultant have an established presence in the industry? 401(k), 403(b) and Defined Benefit services are too specialized to be left to a generalist. A minimum threshold of established clients is needed to separate the Financial Generalist from the Retirement Plan Specialist and reflect commitment to the industry.
  • Is the consultant a recognized fiduciary expert? Much of the responsibilities for the plan sponsor/trustee consist of fiduciary issues. Accredited Investment Fiduciary professionals are the accepted standard for applying fiduciary standards. Look for an AIF® or AIFA® designation.
  • Is the consultant covered by fiduciary liability insurance? This is professional coverage that is important for consultants that act in a fiduciary capacity and reflects their understanding and acknowledgement of the role. Generalists covered by errors and omissions only do not have protection that covers fiduciary issues.
  • Does the consultant disclose how they are compensated and the revenue source? Is the compensation level? A consultant's compensation should be transparent. It is the Plan Sponsor's duty to hire prudent experts and ensure that the fees are reasonable for the services provided.
  • Is the advisor independent or affiliated with a captive organization such as a bank, insurance company, investment company or, financial services “supermarket”? Be aware of the potential conflict of interest inherent with hiring a captive consultant because it may impact fees, disclosure, investments, vendor platforms and possible prospecting of plan participants for ancillary business.
  • Is the consultant a registered investment adviser (RIA)? In order to charge a fee for service an advisor must be an investment advisor representative (IAR) for a registered investment advisor firm. Request to see the consultant's form ADV Part II, a required disclosure document. This information should also be disclosed on the consultant's documents and business cards.
  • Does the consultant have a written agreement covering services, fees and fiduciary responsibility? Fiduciary advisory agreements must be in writing and they provide important clarification of roles and responsibilities.
  • If the consultant will be providing investor education for plan participants, is the advisor qualified and unbiased? The CFP™ designation is the standard for general financial expertise and ethics.
  • How many years of experience does the consultant have servicing retirement plans? Look for established longevity and industry positioning and affiliations. Additionally, what is their education and background?
  • Are all the consultant's registrations, licenses and designations valid? The Plan Sponsor must conduct due diligence by checking these through relevant third parties, including the SEC, FINRA and the individual licensing agencies. Most of these agencies have websites designed to help you in this process.

 

 

Without affirmative answers to most, if not all of these points, it is doubtful the Plan has met the test of hiring a prudent expert.

 

 

 

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