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Do you ever wonder whether you hired the right 401k investment advisor? Does it matter? Here’s how to tell if you are working with the right investment professional.

How To Tell

Investment adviser vs. investment advisor

Generally, investment professionals who refer to themselves as investment advisers rather than investment advisors do so because they consider themselves to be ’40 Act investment advisers. Investment advisers work for Registered Investment Adviser (RIA) firms legally regulated by the Investment Advisers Act of 1940. As a Registered Investment Adviser, we are required to sign on to your plan as a fiduciary. We also meet the three-pronged test outlined in the Act of: 1. Providing investment advice, 2. As a business, and 3. For compensation.

Most brokers use the Financial Advisor title since they are not Registered Investment Advisers. Some cheat a bit and call themselves Financial Advisers (there is no law against doing this). Advisors working for brokerage firms, banks and insurance companies are not required to sign on to your 401k plan as a fiduciary. In addition, under the new fiduciary regulations, they will be able to take advantage of all of the loopholes (technically referred to as Best Interest Contract Exceptions, or BICE exceptions) in the new fiduciary regulations.

What if you hired an investment advisor?

You are going to need to spend some time evaluating your 401k advisor relationship if you hired an investment advisor who works for a brokerage firm, bank or insurance company. These advisors will be presenting their clients with a document, which they will ask their clients to sign, outlining their fiduciary obligations and limitations. Those clients who wish to continue working with their existing brokerage firm, bank or insurance company advisor will need to get comfortable with the services and limitations outlined.

It is important to note that Registered Investment Advisers are already in compliance with the new fiduciary rules. There will be no additional documents their clients need to review and sign with regard to their fiduciary responsibility.

Does it make a difference who you work with?

Remember, the thrust of the new fiduciary regulations is to require that any investment professionals working with your 401k plan put your plan’s interests ahead of their own. Registered Investment Advisers have always been required to do this. Advisors working for brokerage firms, banks and insurance companies have not. They have always been and will continue to be answerable to their employers first and their clients second.

As a result, even under the new fiduciary regulations, you are still likely to receive biased investment advice from an employee of a brokerage firm, bank or insurance company (because of the BICE exceptions in the rules). Registered Investment Advisers, on the other hand, will continue to be required to put your interests first and provide objective investment advice.

It’s all about compensation

Another major difference between an investment adviser working for a RIA and an investment advisor working for a brokerage firm, bank or insurance company is how each is paid. Brokerage firm, bank and insurance company advisors accept commissions and soft-dollar payments from mutual fund families. RIAs don’t. It is the commission and soft-dollar revenue streams that can compromise the objectivity of these advisors.

Next steps for plan sponsors

There are many financial advisors who do good work selling insurance products, investment products and financial planning services. You may work with such an advisor right now on your personal investments or financial plan. There continues to be no requirement that advisors who work with individuals on their personal investments assume fiduciary responsibility — the new regulations apply only to retirement accounts.

Talk to your financial adviser/advisor today to learn whether his/her fiduciary relationship with you will be changing. If you currently work with a brokerage firm, bank or insurance company consider, speaking with a Registered Investment Adviser for comparison.


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 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 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 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.