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The 3 “C’s” to Consider When Looking for a 401k Advisor


The purpose of your retirement plan is to provide a benefit that helps employees prepare for their futures. A good plan also can make you a more attractive employer and gives people another reason to work for you. Does your advisor position your retirement plan to attract employees and support them through the process of investment planning?

Choosing an advisor can be a daunting task, but it’s important to take your time and make an educated decision. Changing advisors is not a simple move that can be accomplished in a week. If you have a bad experience with your advising firm and decide to fire them and hire another, the process can take months, or even years, not to mention how frustrating and/or costly that process can be. It’s best to ask the right questions upfront and carefully navigate through the process of selecting an experienced and appropriate advisor.

The three “C’s” to consider when looking for a 401k advisor:

1. Continuity
Knowing the person who will be advising your participants is key; look for an advisor who is likely to stick around. Big brokerage and insurance companies often boast that they have locations nation-wide, so they are “local everywhere.” On the surface, this may seem beneficial – many locations equal great service, right? Not necessarily.

A “big box” firm may have locations in every city, but they are also likely to send a relatively new advisor to your company because their seasoned veterans have more important sales to make or have moved on from the company entirely. Also, be aware that many of these companies don’t attract the best candidates to handle your retirement plan education as they barely pay their advisors enough to save for their own retirement. It is not in your or your employees’ best interest to have a retirement plan advisor who is entry-level in his/her career and who may see his role with your company as the bottom rung on his/her career ladder. You want a professional who is experienced in this field and dedicated to his/her relationships with you and your employees.

It’s hard to be convinced that your advising firm cares about your financial future if they send a different representative every time they meet with you. Consider the advantages of having a single point of contact. For instance, if you have a question about your plan, who would you rather speak with for assistance – a call center representative who is totally unfamiliar with you and your plan, or the advisor who knows you well? An ongoing relationship with your retirement plan advisor is crucial to building trust for you and your plan participants.

2. Compensation

Your advisor’s compensation structure can pose a conflict of interest when it comes to providing advice to plan participants. Find out if your advisor is being compensated based on a metric impacted by the advice they provide to your employees. Is the advisor paid based on how many participants switch to a proprietary product or how much participants increase their contributions? Or, is their compensation based on the long-term size of your 401K plan? Or is your advisor salaried based on the retirement division’s ability to provide participant success? You may never be entirely certain of your advisor’s intentions, but their monetary compensation can tell you a lot about how the company is trying to motivate them. When your participants feel an advisor is trying to push something on them, it makes them feel like they can’t trust the advice they are receiving. You want an advisor who is divested of any personal interests in the participants’ options and can have a relaxed conversation with your participants that leaves them feeling more knowledgeable and confident about the decisions they have made.

3. Compassion
When you are interviewing potential advisors, do your best to find out how empathetic they are. The best advisors can connect with everyone from the CEO to the receptionist. You want someone who understands and cares about the participants at all levels of the company.

I am aware of a company who was sent a representative from one of the larger investment firms to provide this company’s employees with retirement planning education. The advisor who provided the employee education was fresh out of college and couldn’t connect with a participant who was not as privileged as he was. In meeting with this single mother who was struggling to support four children on a salary well below $30,000 per year, he reduced her to tears by scolding her for not putting enough money into “his” 401k plan. The advisor told this single mother she was not planning well for her children; he went further and suggested her children were going to have to support her later in life since she was not putting money back for her future now. It is safe to say, the employer and 401K plan sponsor were mortified at how this employee was treated.

The bottom line is this: your employees are important people. They devote 40 hours a week to making your company successful. If you want to take care of them in return, one of the best things you can do is choose an advisor who understands that his/her job is to serve your employees. The advisor you chose should be devoted to helping your employees consider their individual financial conditions and gently guiding them through making informed investment decisions.

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