401k Review- Do your 401k providers help manage your risk or increase it?

Fiduciary risk managed     Adding to fiduciary risk

Let’s face it we all hate regulation, especially when it means more work in areas that we aren’t expert in. Recently I talked with a general practitioner physician about her 401(k) plan. She first explained that she already had a financial advisor. As a general practitioner of medicine, she knows that she is not an expert in neurology. The term financial advisor is a generic one it does not indicate that the advisor has any specialty in 401(k) plans. In fact, most financial advisors think that 401(k)s are simply about investments and not about retirement planning that involve both employer and employee.

401k Advisor or Registered Representative aka Financial Advisor (Stock Broker)?

When I asked her if she had received her plan sponsor fee disclosure, she didn’t know what I was talking about. If her practice received it, she assumed that her office manager had it. The law says, as the employer, she is the one responsible not only for making sure that she received it, but also determining its accuracy and whether the fees are reasonable. The reasonable test involves comparing her fees against an alternative.

She then went on to complain that the government’s new rules stopped her office manager from being able to provide financial advice to their participants. That’s not a new rule. I assume she said that because that’s what her financial advisor said. This may be a common misconception by financial advisors that aren’t well-versed in retirement plans. Advisors may be involved with the plan because they are working with the owner on their private wealth. An advisor should understand the intricate details of guiding or advising the specifics of a 401k.

Do you know your fiduciary responsibility?

The 401k rules have always stipulated that the plan sponsor is prohibited from giving advice to participants without taking on liability. If you think about, if someone in your office told you about a health problem they were experiencing and you recommended a specific medicine and they got sick, couldn’t they sue you? Likely you would tell her to go see a doctor. When you say go see a doctor, you actually mean go see a general practitioner. That doctor may then send you to a specialist in the area of sickness. They would not try to treat a urological condition simply to get paid for it. Not only would that be against their fiduciary oath but also potentially cost them dearly in malpractice. Unfortunately many financial advisors without knowledge of retirement plans do not recommend a specialist to their clients.

Many investment professionals that work with retirement plans are doing so in the capacity of a broker. This means that they should not provide advice. You may notice in commercials that are well-known brand name firms that they either use the terms education for guidance, but never advice. Should you find yourself in a lawsuit you will quickly find that these terms while in common conversation might all appear to be the same, from a legal perspective they have different levels of liability.

Investment Fiduciary. Working for Your Benefit Not Their Own. Who Knew?

The law has allowed plan sponsors or employers to delegate portions of their legal liability to firms that were willing to take on that liability. Unfortunately, in our busy days we often assume that those that we pick are necessarily taking on liability for their actions. Enter the fine print. Often when we make assumptions, we don’t know the questions that we should be asking or what we should be looking for in our contracts will documents. That is why, I recommend hiring an attorney that specializes in the laws of 401k plan. I have learned that some employee benefits law attorneys are not really specialists in the area of 401k plans.

Regarding your 401k advisor, I recommend finding an independent 401k advisor with a specialty in retirement plans and retirement planning to be your guide. Do you know type of advisor is working on your plan? If not, make that your next step.

(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. (2) Securities offered through LPL Financial. Member FINRA/SIPC. (3) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IN, IL, MI



About Envision Wealth Planning

I empower smart people to make smarter money choices that honor their personal values. After working together to develop a holistic plan, I help clients navigate the emotions and self-expression that can derail financial wellness. I use Financial Life Planning as a tool to propel client’s values, goals, and passions forward. I help clients figure out strategies to fund and maintain a sustainable retirement, plan for funding college, manage student loan debt, balance current lifestyle with savings goals, assist with financial planning during a divorce, and align values with your investments. I have an MBA from MIT Sloan. My financial designations include Certified Financial Planner (CFP®), Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst® and College Funding and Student Loan Advisor.
This entry was posted in 401k Monitoring, 401k Review, 401k rules, Department of Labor, Fiduciary duties, retirement plan education and tagged , . Bookmark the permalink.

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