What Does a 401(k) Advisor Do?

August 30, 2017 by Alex Goldberg

So you are managing your company’s 401(k) all by yourself? On the one hand, a 401(k) is a great way for you and your employees to steer a significant portion of earnings each year into tax deferred savings. But sponsoring a retirement plan can be time-consuming and complicated. And, the company 401(k) places legal responsibilities on you as the plan’s fiduciary.

Under ERISA rules, plan fiduciaries must act as prudent experts. That means exercising a high standard of care when it comes to selecting service providers, choosing investments, and administering the plan.

That’s where a 401(k) advisor comes in. A plan sponsor may hire a 401(k) advisor to develop the plan and provide advice on compliance issues, and even help select other third party providers, like a recordkeeper or custodian. The plan sponsor may also hire an investment manager to select and monitor the plan’s mutual fund investments. Depending on the relationship, that financial advisor may or may not be a fiduciary. (Read about the difference between a fiduciary and a broker here.) Regardless, a good advisor can make your life easier by giving you and your staff more time to focus on your business.

Good 401(k) advisors not only take work off your plate, but they also reduce your liability by taking on a fiduciary role. To better understand just what services a 401(k) advisor can provide, we’ve listed some of the most important below.

Five roles your 401(k) advisors should do:

1. Consultant – You know your business but you may not even want to know the intricacies of retirement plans. And with your schedule, you probably don’t have time to become an expert.  An advisor, however, can consult with you on plan design or the implications of an employee match or vesting schedule. A good advisor can show you the potential administrative advantages as well as the cash flow implications of a safe harbor plan compared to a traditional 401(k).  The advisor can also explain how automated enrollment and employee engagement can reduce the need for a safe harbor approach.

2. Manager – Running a retirement plan can require service providers with widely varying expertise, including recordkeepers, custodians, and investment advisers. The adviser may also be coordinating with your accounting team, board of directors, lawyers and trustees. A good 401(k) advisor will communicate and coordinate with all parties to keep the plan running smoothly. At ForUsAll we are experienced managers and will happily recommend an experienced recordkeeper or custodian who’s a great fit for your company’s retirement plan.

3. Investment manager – You and your staff want to grow your business, not manage investments. Yet ERISA requires prudent selection and monitoring of those 401(k) investments. Besides, you are probably not crazy about being liable for poor investment choices, or inaccurate information provided to employees. Fortunately, you have some options when approaching these responsibilities. For example, you can hire an advisor to provide investment advice and suggest appropriate investments for the plan. By acting as a limited scope fiduciary, this type of advisor (also called a 3(21) fiduciary) can save you time and headaches, but you still have the final call on the investments and retain the associated fiduciary responsibility. Another option is to hire a 3(38) investment manager who not only makes the final call on investment selection, but also has discretion to change the plan’s mutual fund offerings. This type of advisor also monitors the investments, and, importantly, takes on the liability associated with these duties. This type of advisor may also create the investment policy statement and provides participant education.

 

At ForUsAll we are an independent advisor to ensure we stay conflict-free. We believe if you hire an investment advisor for your 401(k) plan, that investment advisor should take the liability and fiduciary responsibility for the investment advice given on the plan. That’s why we offer 3(38) investment fiduciary services.  

 

4. Finance professor – Employee participation is a key measure of a plan’s success. Without it, a 401(k) runs the risk of becoming “top heavy” – a situation where contributions of the highest paid employees are out of balance with the contributions from everyone else. That’s one reason your plan needs an employee educator. The advisor should help the participants understand the plan itself, along with the investment options offered in the plan. The best advisors are available to field employee questions relating to the plan or personal finances. A good advisor can even help retired employees manage their savings. ForUsAll’s virtual advisor, “DAVE,” was designed to overcome the shortcomings of traditional benefits education. And our team of investment advisor representatives is available to answer employee financial wellness and investment questions.

5. Administrator & compliance expert Being an expert in all things 401(k) is a tall order. That’s why just handling important aspects of your 401(k) is a critical advisor role. That can mean everything from reviewing discrimination testing to improving employee engagement in an effort to improve those test results. It can mean updating the employer on new IRS rules or retirement laws. And if the advisor has technology expertise, making sure payroll integration is working properly. Then, there is the monster known as the IRS Form 5500 (cue scary music). Some advisors may help you gather the information for the form, but not complete for the form for you. Or the advisor may let your recordkeeper or TPA complete the form, but not vouch for it. That means you are responsible for its accuracy and timely submission. There are advisors who can take care of the whole shebang and the responsibility. But for that you will need and advisor who provides a 3(16) fiduciary, one who will look suspiciously like a superhero if you are knee deep in this process already.

So What should your 401(k) advisor do?

So, here’s the bottom line: There are many duties a 401(k) advisor can perform for you. But there are few pre-defined roles taken on by every advisor, and roles may vary from company to company. Given the complexity of running a 401(k), it’s critical to know what duties you want to take on yourself what you want to delegate to a third party. When you do delegate, be sure to know exactly what tasks the advisor will perform, and what liability they will assume.

By delegating fiduciary responsibilities to a third party, you can reduce your risk to choosing and managing that competent third party. For example, you can delegate the investment selection and monitoring by hiring a 3(38) fiduciary. Or you can delegate almost all of the administrative work and responsibilities by hiring a 3(16) fiduciary.

It’s all up to you.  Talk to one of our retirement consultants to learn more about how ForUsAll’s advisors can help manage your company’s retirement plan (so you can stay focused on managing your business). And if you’re convinced your plan needs an advisor but are wondering how to compare options, read our post about how to evaluate 401(k) advisors.

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Alex Goldberg
Alex is a behavioral economics buff and a firm believer in the power of smart default settings. He envisions a future in which Americans don't have to be proactive about saving for a comfortable retirement. As an early member of ForUsAll’s marketing team, Alex leads demand generation efforts, building awareness and enticing plan sponsors with the promise of lower fees, less work, and reduced liability. After graduating from UC Berkeley with a degree in economics, Alex joined an early-stage start up and built their marketing engine from scratch, helping the company grow from twenty or so employees to over a hundred. In his free time, Alex loves to play soccer, listen to podcasts, watch documentaries, try new crockpot recipes, and sample Japanese whiskey. He has no plans of ever retiring, but looks forward to having more time to travel the world.
Alex Goldberg

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