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Each year you should spend some time evaluating the providers who work with your 401k plan. Assessing the performance of your 401k investment advisor is often the most difficult since he/she may be the captain of your 401k provider team. How can you tell if your 401k investment advisor is doing a good job?

Your 401k Investment Advisor Should

Sign on to your plan as a fiduciary

You should not continue to work with a 401k investment advisor who will not sign on to your plan as a fiduciary. In addition, you should understand how your advisor’s fiduciary responsibilities are affected by the new regulations that took effect on June 9. You can feel better about working with a 401k investment advisor who is employed by a Registered Investment Advisory (RIA) firm. These advisors are required to sign on to your 401k plan as fiduciaries without limitation. You will need to perform additional due diligence if your 401k investment advisor works for a brokerage firm, bank or insurance company, given the exceptions that exist in the new regulations.

Provide a complete menu of services

Production of reports, investment option performance evaluation, fund searches, Investment Policy Statement (IPS) maintenance and fiduciary compliance consulting are all core investment advisory services. In addition, your 401k investment advisor should be a key player in coordinating your employee education sessions; managing your recordkeeper, trustee, custodian and other providers; benchmarking your plan; helping with plan design issues, and implementing your financial wellness education solution.

Have a clean background

Studies have shown that investment advisors who have been sued in the past are more likely to be sued in the future. You don’t have to work with problem advisors. Check the background of your investment advisor using BrokerCheck. BrokerCheck is a free service provided by the Financial Industry Regulatory Authority (FINRA), a financial industry regulatory agency under the direction of the Securities and Exchange Commission (SEC). Any violation you find on the BrokerCheck website for your existing advisor should cause you to begin searching for another.

Provide you with leading edge advice

Top 401k investment advisors are focused on sharing advice with their clients that keeps their 401k plans market competitive. This includes suggestions on plan design (the addition of auto features, loan program updates, and Roth 401k options) employee education (integration of 401k plan education sessions with financial wellness education) and investment menu maintenance (an index option for each asset class).

Manage investment costs

It is becoming common to offer an index option for each asset class. You should also be using nearly all institutional or R6 mutual fund share classes in your 401k plan. Mutual fund costs continue to decline and you should be making changes to your investment menu annually to take advantage of lower-cost share classes as they become available.

Be objective

Don’t work with an investment advisor who is also an asset manager or recordkeeper. For example, many employers use mutual fund companies as their investment advisor as well as their asset manager and/or recordkeeper. No surprise, these investment advisors tend to overuse the investment funds their mutual fund family offers. This is a conflict of interest that compromises the investment advisor’s objectivity and may also be a breach of your fiduciary duty.

Work for investment advisory firms

This may seem logical, but there are a lot of plan sponsors that hire accounting firms, banks or insurance companies to provide investment advisory services to their 401k plans. Hire a professional who works for a firm whose core business is providing investment advice. There is a major difference in the quality of advice you will receive.

Practice fee transparency

Some advisors receive soft dollar payments from mutual fund families. As a result, it is hard to determine exactly what you are paying them. Work with those advisors who practice fee transparency. These advisors will produce an invoice for you each quarter for the services they provide. Their only source of revenue is the fees they receive from their clients.

Be able to recommend the best investment options

Many employers use investment advisors who are required to recommend proprietary products or who aren’t able to work with the entire universe of investment options or providers. Investment advisors who work for brokerage firms, banks, and insurance companies fall into these categories. Work with an advisor who has no conflicts of interest and will make the best recommendations for your plan and participants.

Finally, the SEC has put together a great list of questions that you may wish to consider asking your investment advisor.


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 more than $400 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, 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.