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Are you working with the right 401k investment adviser? Do you want to find out? Ask your adviser the following eight questions and then see how the answers compare with the generally desired responses outlined below.

These questions are listed in order of importance. Please note, there is a difference between a 401k adviser and 401k advisor — it’s not that I can’t figure out which spelling to use.

Questions To Ask Your 401k Advisor

1. Are you a fiduciary for the recommendations you make?

This is the most important question — by far. The answer will provide you with an indication of the quality of the advice you will receive. The difference is between getting investment advice that is in your best interest or getting advice that is in your advisor’s best interest.

Investment advisers who work for Registered Investment Advisory (RIA) firms are required to act as fiduciaries and provide advice that is in their clients’ best interest. A 401k advisor who works for a bank, brokerage firm, or insurance company is only required to provide advice that is suitable. Big difference. Always work with a 401k investment adviser who is required to act as a fiduciary.

2. How are you paid?

401k investment advisers acting as fiduciaries working for RIAs are more likely to only accept fees paid by clients. A 401k advisor working for a bank, brokerage firm, or insurance company generally receives soft dollar payments from mutual fund companies, commissions, and fees from clients. It can be hard to determine how much these advisors are being paid. And remember, you are paying them regardless of where their compensation comes from.

In addition, a 401k advisor paid on commission or who receives soft dollar payments from mutual fund families has an agenda to push and, as a result, is conflicted. They are salespeople rather than advisers. They would much rather see you invest in something that pays them a high commission than offer you a low-cost option that might be more appropriate. They have families to feed and can’t make money working with you unless you buy something that pays them.

Work with 401k investment advisers who receive 100% of their compensation from invoices they send to their clients. It is much easier to determine what you are paying for their services and it eliminates all conflicts of interest.

3. Does the company you work for sell investment funds/products?

There is nothing wrong with investing in a proprietary investment fund/product your advisor is selling if it is the best option available. However, a 401k advisor who works for a bank, brokerage firm, or insurance company is required to attempt to sell you their firm’s funds/products first, whether they are a good solution or not.

Generally, 401k investment advisers working for RIAs do not have firm-branded investment funds/products to push. As a result, you have a better chance of getting a lower-cost, higher-quality recommendation from them.

4. What professional credentials do you have?

Retirement plan sponsors should work with 401k investment advisers who have some sort of retirement plan-related credentials (AIF, CRPS, QPFC, or CPC). Nearly all credentialing programs I am aware of have a professional experience requirement as well, so you can be assured that if you hire credentialed individuals, they will have met a minimum experience requirement.

5. What is your educational background?

There are a lot of individuals without an appropriate educational background working as a 401k advisor. Why? Because the advisor jobs they are working in for banks, brokerage firms, and insurance companies are primarily sales positions. You want to work with a 401k investment adviser, not a salesperson. Make sure your adviser has a degree in finance, economics, or investments.

Yes, there are a number of individuals with other types of degrees who changed careers and are good advisors and really fun to talk with. However, for the retirement plan balances you are responsible for, it might be better to hire the boring individual with the economics undergrad and MBA who really understands this stuff.

6. How many years have you been a 401k investment adviser?

We are at the end of a nine-year bull market in U.S. stocks. That means there are a lot of 401k advisors who have entered this business over the past nine years who have never experienced sustained down markets. As someone who has worked with retirement plans for more than 30 years, I can tell you that bear markets aren’t much fun — for anyone. Your 401k advisor may decide to step away from this business during the next bear market — many will. Make sure you work with a 401k investment adviser who has weathered more than one storm, since tough markets are when you need an investment adviser the most.

7. What does your ideal client look like?

Just like you, right? That’s the answer you are likely to get. You should find out what your 401k adviser’s book of business looks like. How many clients does your adviser have with your number of plan participants out of their total book of business? If you aren’t the dominant client size, you will likely be inadequately served. And by that I mean you won’t get exactly what you need, but something that might be close. With the large number of 401k investment advisers out there, you don’t need to settle for someone who doesn’t specialize in plans your size. Generally, it is not hard to find the right adviser.

8. What happens to my business if you are gone?

Advisers change firms every now and then. Some exit the business, one way or another. If you tend to be loyal to your business partners, understand what might happen if your point of contact leaves.

All of these questions are easy for your adviser to answer. If you don’t receive prompt, complete responses, think about putting your business out to bid. Also, make sure you check out your adviser using BrokerCheck. It is a free service provided by FINRA, the Financial Industry Regulatory Agency, under the direction of the Securities and Exchange Commission (SEC). BrokerCheck will tell you whether your adviser has committed any infractions or broke any regulations.


About the Author

Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs, and many others. Mr. Lawton may be contacted at (414) 828-4015 or bob@lawtonrpc.com.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on nearly $475 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at: https://www.lawtonrpc.com. 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, a 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.