7-Point checklist for you and your financial advisor

You’re a small business owner and things have been going well lately. Customers are happy and you’re feeling proud of your accomplishments. You realize the timing is right; it’s time to look into retirement savings plans for you, your employees and future employees. The problem is, words like “fiduciary” and “new DOL rulings,” and “investment portfolio” intimidate you.  

You have a lot of questions – starting with where to begin. Often times talking to a financial advisor (FA) at the beginning of your decision-making process can ease the stress and get you pointed in the right direction. Here is a 7-point checklist to help you get the advice you need when you and your advisor meet for the first time.

7-point checklist for you and your 401(k) Financial Advisor

Be prepared upfront to talk about your retirement goals. Know what you want to accomplish. Know where your employees fit in and be prepared to talk about options. Meaningful topics of conversation should include something like, “I’m 40 now, but I’d like to retire at age 65,” or “How will my contributions affect my take-home pay?” In addition to personal questions, ask about your business, “Will my business qualify for 401(k) tax deductions?” Start the preliminary talks – It’s always worthwhile to have a plan for your plan.

Ask what type of financial services the firm specializes in. Find out what services are in the firm’s sweet spot. Is 401(k) their specialty or is their focus mainly on private wealth management? Ask what percent of their clients they advise on a 401(k) retirement plan. As your company grows, will your FA be able to keep up? Ask if, and when, your financial advisor will do a periodic review of the plan? How open are they to meet with your employees?

Once a plan is in place, how often should you and your financial advisor meet? First think about where you want to spend your time. If you go it alone, the less time you have to cover the daily needs of your business. On the other hand, if your FA will provide assistance with the management responsibilities of the 401(k) or you are working with a 401(k) plan provider that offers those services, your time commitment will be less.

Ask who will oversee the enrollment meetings where plans and investment options are discussed and confirm who will provide the educational and compliancy components for the ERISA §404(c) plans – will it be you or your financial advisor? 

Discuss your own involvement level.  Depending on your personal situation and investment knowledge, you may want anywhere from limited involvement, to complete management, or somewhere in between.  A financial advisor can help you understand the breakdown of responsibilities and ensure compliance. Sponsoring a 401(k) plan can be time consuming and it also places legal responsibilities on you as the plan’s fiduciary. You should leave this meeting feeling that your financial advisor has your back.

How often will your financial advisor meet with your employees? You want your employees to be fully engaged with their 401(k) plan. As the fiduciary, part of your responsibility is to provide sufficient information to participants so that they can make informed decisions. Ask your Financial Advisor if they are available to talk to your employees to help with decisions on investment options, risk and returns, and fees and charges. Studies have shown that providing investment education and advice can increase the rate of return of participants. Better informed employees make better investment decisions and in turn, stronger retirement accounts.

Ask for the metrics. As the plan sponsor you want to know that your plan will help employees save for retirement. Ask advisors if they will share plan metrics. They should be able to provide numbers such as participation and deferral rates, average balances and projected retirement readiness. This statistical data can demonstrate that the 401(k) plan has improved over time. Plan sponsors want to see their employees succeed in saving for retirement and metrics are a great way to provide evidence things are working.

Understand the fees and how they are going to be charged.  Every 401(k) plan will have some kind of compensation or fee structure that will affect participants. As more lawsuits are filed against employers regarding excessive fees, plan sponsors should be leery of hidden fees, additional fees and conflicts of interest. The financial advisor should be proactive and provide the transparency that will make it easier for you to answer “the how much will this cost me” question that you and your employees should know.

Ask advisors if they are a ‘fee-only’ or ‘fee-based’ advisor, or if they accepts commission on 401(k) plans. Fee-only advisors have no inherent conflicts of interest, they don’t accept fees or compensation based on product sales, and they generally provide more comprehensive advice. However, fee-based advisers may charge both fees and commissions based on the products they sell.

FA investment strategies. Once you’ve sat down and had the retirement savings conversation with your FA, it’s time you ask yourself these two important questions, is a 401(k) retirement plan right for you and your employees and, are you willing to take on the full fiduciary responsibilities that come along with the decision? No matter how you answered, you’ll want to talk to a financial advisor regarding the discretionary authority or control over plan assets and the investment management of the plan. These activities put significant onus on the plan sponsor and require a reasonable measure of knowledge, experience and follow-through.

When considering a 401(k) retirement savings plan for your business, asking the right questions of your financial advisor upfront is critical.  You’ll learn what he or she can do for you as well as what you will need to be responsible for as the plan sponsor.  Don’t worry, you won’t have to go-it alone. 401(k) plan providers like PAi offer services that include education and timely alerts. Their CoPilot service isn't just a 401(k) plan - it's a managed retirement savings service. This means you can remain focused on running your business, not managing a retirement plan. It’s about you and your workers owning their own retirement readiness. Contact us online or give us a call to get your CoPilot plan started: 800.236.7400.