Archives for March 2012

Fiduciary Advisors can Save Money for Plan Sponsors and Participants

Retirement plan sponsors often worrying that an independent fiduciary’s services will be expensive. This is true especially if they’re used to dealing with brokers, where the costs to participants were hidden. In fact, there’s often no cost to the company for hiring an independent fiduciary.

401(k) Plan Pays Advisor’s Fee if Conditions Are Met

Two fiduciary duties are key to how an independent fiduciary gets paid. The Department of Labor says fiduciaries’ responsibilities include “Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them.” This is the Duty of Loyalty, also known as the Exclusive Benefit Rule. It ties in with the fiduciary duty to pay only plan expenses that are reasonable relative to services provided.

The 401(k) plan rather than the plan sponsor can pay the independent fiduciary if certain conditions are met. The sponsor must document that services and expenses are reasonable. Plan sponsors must meet high standards because plan assets are held in trust for the benefit of the participants and their beneficiaries. If expenses are paid from plan assets, the fiduciary responsibility to have only reasonable services and reasonable expenses applies. On the other hand, if the plan sponsor pays all expenses itself, the expenses can be as unreasonable as the plan sponsor wishes because the money is coming out of the sponsor’s pockets.

Savvy Retirement Plan Advisors Often Cut Expenses−and Risk

In Smart Investor’s experience, an independent fiduciary can often cut the expenses of 401(k) plans formerly managed by brokers. By eliminating hidden costs, such as revenue-sharing between investment management companies and brokers, the plan’s total expenses may fall, even after paying the independent fiduciary’s fee.

Another benefit is that a newly hired independent fiduciary may find less risky—as well as less expensive—products for use in the plan.

The net result? Plan sponsors save time at little or no cost to their companies, while also reducing risks from litigation. Plan participants benefit from rigorous analysis and management of their investment options that may increase their odds of a successful retirement.

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA? Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.

Key Questions for Your Retirement Plan Provider, Part Three: Key Personnel’s Continuity

Retirement plan sponsors, have you ever developed a relationship with a business provider only to have that person drop out of sight? If so, then you know how painful it can be. To minimize these unpleasant surprises, you should ask about key personnel’s turnover and back-up plans when you’re evaluating potential 401(k), 403(b), or 457 plan providers.

Retirement Plan Provider’s Key Personnel Plans

Start by asking your key contact, “How long do you personally plan to be in this business with this company?” Don’t simply assume the registered investment advisor or other professional with whom you develop rapport will always be there. Some firms experience a steady flow of staff departures and arrivals. Ask about that overall turnover rate.

Unexpected things happen. So even if your key contact gives a convincing answer about long-term plans, ask about back-up. Who can fill in if that person becomes unavailable for any reason? Check the back-up staffer’s qualifications and experience, too. Just because the firm gives you a name, doesn’t mean the new person can fill the shoes of your original contact.

Retirement Plan Provider’s Organizational Breadth and Depth

One person can’t meet all of your needs as a plan sponsor. It isn’t practical. Ask who else at the firm will work with you, and in what capacity. Again, find out their qualifications and experience.

Another way to address this issue is to ask for an overview of the firm and its retirement plan operations.

More Questions for Savvy Plan Sponsors Evaluating New Providers

If you missed the earlier posts in this series on assessing plan providers, check them out now:

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA? Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.