Top Things That Go Off The Rails When Selecting A Retirement Advisor
It’s RFP season for retirement plan advisors, so it’s a good time to discuss the selection process, what mistakes we see committees make, and how to make the whole process go more smoothly…for everyone.
We get it. Choosing a retirement plan advisor isn’t as straightforward as, say, choosing a cleaning person. That’s pretty easy in comparison.
Do they have good references? Check.
Did they pass the background check? Check.
Are they on time and do their work relatively quickly? Check.
Do they do their work well (is it clean or not)? Check.
Do they offer extra services such as doing laundry, cleaning appliances, etc.? Check.
If only you could check items off a checklist when selecting a retirement advisor, that would make the process so much simpler. It’s not that easy, though, and for the good of your employees and your organization, you need to dig a little deeper when it comes to the selection process. In fact, you have to follow ERISA guidelines for selecting an advisor and monitoring them ongoing, as well.
Here are some of the top issues we see when it comes to selecting a retirement advisor.
Not doing any due diligence before selecting who to work with
Businesses come up with a lot of not-so-good reasons for selecting an advisor: “We decided to consolidate our benefits to one provider.” “They had a retirement plan department.” “So and so knew the board president.” “They were the first ones that asked us about it.” While these sound convenient, you have to do your due diligence, know who you’re going to be working with, and what exactly they do for what you’re paying them. Don’t take my word for it. This is so important to DOL that they have Tips for Plan Sponsors for selecting providers and for selecting advisors, too. You also need a person/team with the specific skills and knowledge to handle retirement plans, since these plans are dramatically different from financial planning and are covered by a different set of rules and regulations.
Sending out a generic advisor RFP and/or not knowing what you are looking for
It's okay not to know what you're looking for at first, but don’t send an RFP full of questions to advisors until you do. Do some web research (Google is your friend), talk to your recordkeeper or third-party administrator about what they see advisors providing for other clients, and then talk to some advisors informally about what they do for their ideal client. You (i.e. the committee) also need to determine what you expect from your advisor - how often will you meet, what types of reporting you need, what support your employees need, how you will judge success, etc. To quote Alice in Wonderland’s Cheshire Cat, if you don’t know where you’re going, any path will do. You need to have at least some idea of what your destination is.
Assuming lowest cost is best
ERISA and DOL want you to concentrate on value over cost; fees are reasonable once you weigh them against the value of what you’re receiving in exchange. An RFP is like a college application; if you’re basing your decision only on the cost, it’s kind of like you’re just rating college applications on the strength of the applicant’s writing skills. Be sure that you interview any prospective retirement advisers and that you allow for a discussion to happen about your plan. Find out how they determine the cost of working with your plan and drill down in your conversations to determine the value that they will bring to the table.
Asking for a cost proposal before you’ve described what services you’re looking for, or being unwilling to talk about the plan in advance
Many of us on the specialist side have a standard service offering. That being said, we also have the ability to deviate from it when it makes sense. The cost that goes with that service offering depends on the level of work that is involved, as well as the breadth of services you need, so be prepared to discuss your plan and what you’re looking for so it can be most advantageous for everyone. Just like you wouldn’t expect to get an accurate quote for a roof repair sight unseen, you should not ask a retirement plan advisor what you will pay until you both have agreed what services are needed.
Looking at cost over value (this comes back to work product)
When you pay for knowledge, skillset, and support from a specialist and specialist firm, you get extra stuff (e.g. access to the bat phone). We’ve spent 20 years developing relationships with all the major players in the industry. We go to conferences with them, we help shape legislation, we hear the intent behind why things are the way they are, and we get the investment outlook or positioning straight from the horse’s mouth. That kind of quality and breadth that is brought to our work is amassed through experience, and it’s simply not found when you’re looking at a primarily financial planning, insurance or wealth management group. Focusing on value will help your employees have better retirement outcomes, save you time and energy, maximize the value of your benefit package, lower your corporate risk, and allow employees to retire with dignity on their timetable.
And then there’s the fact that we’re in a litigious society, unfortunately. Retirement plans are looked at with greater scrutiny now then they ever have been, and you want someone on your side that helps you understand your responsibilities, make thoughtful decisions, and document how you arrived at them, in the best interest of your employees. This kind of support doesn’t come for free, but you’ll sleep better at night knowing your retirement adviser has your back.
Remember: reasonable fees go along with reasonable costs, and you get to define reasonable. That’s done only by knowing what else is out there, asking for references, knowing what you need, and doing your due diligence when you embark on your search for a retirement plan advisor.