The Useless 401(k) Financial Advisor

Did you ever hear of a dentist that didn’t bother to check a patient’s teeth or the bartender that didn’t serve any drinks to thirsty patrons? Me neither.

However, I still see retirement plan financial advisors who don’t do the basics of their job. While people think that the role of a financial advisor for a participant directed 401(k) plan is about picking top performing funds, that is not the case.

The most important role for a financial advisor in a participant directed 401(k) plan is working with the plan sponsor on the development of an investment policy statement (IPS), selection and review of plan investments based on the IPS, and providing investment education to plan participants because the use of a financial advisors is to minimize any liability under ERISA §404(c). If the financial advisor can’t complete those tasks, they serve no purpose than to just get their undeserved fee.

 I reviewed a Plan a few weeks back for a Retirement Plan Tune-Up (cheap plug, my plan review for $750) and the Plan had a broker of record. Problem was that the broker was getting 60 basis points in fees, which was high on a $15 million plan. In addition, the Plan had no IPS or giving education to plan participants. So while the Plan sponsor would get no protection from liability under 404(c), the broker was getting 60 basis points for doing nothing.  A broker not doing the most important jobs for a retirement plan advisor is almost the same as one of the political lackeys having a no show job.

 Whether you are an advisor or you have on, know the roles and make sure they are being completed.

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9 Responses to The Useless 401(k) Financial Advisor

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