PSI Newsletter and Website Header 10.2.15
By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

How do 401k plan sponsors know if they are receiving good investment advice? That question is more difficult to answer for plan sponsors than it is for individual investors since plan sponsors need to be more concerned about process than performance. It is not necessary for plan sponsors to offer the best performing funds in their 401k plans. Rather, they should be more concerned that the process used to select and monitor the investment options offered is compliant and sound. With that in mind, outlined below are some ways plan sponsors can tell whether they are receiving good investment advice.

Good investment advice is comprehensive

The advice shared should be comprehensive in terms of ensuring that there are investment tracks available for all types of 401k plan investors. Typically, a 401k plan has four types of investors: 1. Core Funds, 2. Do-it-for-me/Professionally Managed, 3. Index and 4. Specialty. The advisor should ensure that there are enough investment options available to satisfy all of these investor types. In addition, the advice offered should also be comprehensive in terms of ensuring that there are sufficient investment options offered to allow plan participants to diversify their investment accounts appropriately.

Sound process

The investment advisor should demonstrate a thorough, prudent and understandable process for surfacing investment options for the investment committee to consider. The reports presented should show, at the very least, performance, cost and risk for the recommended options. Investment committee members should understand the reports and be able to follow the advisor’s logic in choosing a recommendation. Keep in mind that every advisor has different criteria for evaluating investment options. For example, I try to surface options that display top quartile measures in the three criteria shared previously. I also place a high value on investment options that have a downside capture ratio of less than 100% since participants worry a lot when markets fall and it is better to offer more defensive investment options in a 401k plan than overly aggressive ones.

Cultural acceptance

The advisor should understand the client well enough to introduce investment options that are appropriate for their plan participants. For example, I have some clients who refuse to offer real estate or commodities funds to their plan participants because they believe those asset classes to be too volatile and subject to unexplainable price fluctuations.

Good investment advice involves proper monitoring

The advisor should be presenting monitoring reports which everyone on the investment committee understands. Recommending good investment options is important, but monitoring and ensuring that they remain appropriate is just as important. I would estimate that at least half of all investment committee members do not understand the monitoring reports their investment advisor shares with them at each review meeting. The theory that most advisors use is that sharing more information is better since they then can never be accused of not paying attention to a specific measure. However, I would argue that it is the adviser’s job to present those indicators that are most appropriate for determining whether an investment option is doing what it should in the plan.

The bottom line is that everyone on the investment committee should understand what the investment advisor is saying, doing and presenting all of the time. That is the best way to ensure you are receiving good investment advice.


About the Author
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or

About Lawton Retirement Plan Consultants, LLC
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at: Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.