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Tips for Hiring a Plan Advisor

Best Practices, Investment Committee

Most plan sponsors, trustees, and investment committee members are neither ERISA nor investment experts, and so need the assistance of independent experts. Here are some best practices when hiring a plan advisor or consultant…

1 Consider the qualifications of the individual when hiring a plan advisor.

An advisor is an important partner who can help you manage your ERISA obligations. 401k plans are highly regulated and governed by ERISA, so it’s important that you hire an advisor who has completed ERISA and fiduciary training. A complex regulation requires a certain level of expertise in the law in order to help you in meeting your fiduciary responsibilities.

2 Identify if you want or need an advisor that will be a fiduciary on the plan and the fiduciary role you want them to take (if any).

If members of your committee have experience in managing an ERISA plan already AND are experienced investors able to meet the “prudent expert” rule, you may just need an advisor to provide education and transactional support. (non-fiduciary role)

Two additional very common fiduciary roles and include:
– ERISA Section 3(21) fiduciary – providing investment advice (and you have the final sign-off)
– ERISA Section 3(38) fiduciary – Investment Manager – you sign off on the investment policy, then they are given discretion to implement the policy by buying, removing, replacing funds without needing your sign-off (this is an actual transfer of liability in this role)

3 Understand what a reasonable fee is to pay an advisor.

Ask for a consultant’s fee benchmark report during the interview process so you can identify how their fees compare based on the services they’re offering and the size and complexity of your plan. Most 401k specialists have access to benchmarking software either independently through Fiduciary Benchmarks or fi360, or through their firm, to produce such a report so you can determine the reasonableness of the fees being quoted.

This article is just one in a series on Best Practices for Investment Fiduciaries. Click here to access the entire series.

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