Do I Need a 401(k) Advisor?
Do I Need a 401(k) Advisor?
A few months ago, my kids and I started to get into watching Bear Grylls. Bear has a tv show where he is dropped off in remote locations and shows how to survive and make your way back to civilization. He walks through the plants that are safe to eat, how to build shelter, and how to find water. I'm convinced you could drop him off anywhere, and he would find his way back to civilization. However, if you drop me off on a remote island, my chances of finding my way off the island are much slimmer than Bear's.
Understanding the value of a financial advisor is related to this comparison of Bear Grylls and me. I would need help from a professional due to my lack of survival knowledge, while Bear has enough experience to make it on his own.
What Does The IRS Expect of Plan Fiduciaries?
The IRS indicates that one duty of retirement plan fiduciaries is "carrying out duties with the care, skill, prudence, and diligence of a prudent person familiar with the matters." It continues, "The responsibility to be prudent covers a wide range of functions needed to operate a plan. Since you must carry out these functions in the same manner as a prudent person, it may be in your best interest to consult experts in such fields as investments and accounting." (IRS, 2022).
If you are a Bear Grylls of 401(k) plan fiduciary, you may not need a qualified advisor. If not, hiring the right team is not only a prudent move, it "may be in your best interest."
How Do I Choose the Right Advisor?
Not all advisors are experts in the retirement plan field. So, finding the right professionals is not as simple as adding a financial advisor to the plan to check off a box. Here are some of the questions that I think are worth asking.
Does the professional focus on retirement plans?
How many retirement plans does the professional advise?
Can the professional be replaced without having to change other providers?
Is the advisor independent?
How do their fees compare to others?
What services are offered?
Remember that retirement plan fiduciaries must act with prudence. You are making decisions on behalf of the plan participants. Buying a cheap car may save money, but it doesn't mean the car is safe to drive. Similarly, cutting out professionals from a retirement plan may seem like a way to save costs, but make sure doing so doesn't leave you with blind spots or relying on other providers that may not have the same fiduciary obligations as they have. Make sure there is a process and documentation as to why decisions are made for the plan.
BibliographyIRS. (2022, June 16). Retirement Plan Fiduciary Responsibilities. Retrieved from irs.gov: https://www.irs.gov/retirement-plans/retirement-plan-fiduciary-responsibilities