Navigating the complexities of plan administration is challenging for any retirement plan sponsor. Between sweeping changes brought on by the SECURE Act 2.0, continued litigation and a desire to provide the best experience for participants, many organizations are contemplating whether to stick with their current advisor or make a switch. This decision to change retirement plan advisors involves weighing the risks and rewards to ensure you provide the best for your employees while minimizing liability.
Why Consider a Switch?
Recent surveys highlight a significant trend: plan sponsors increasingly seek advisors with specialized knowledge. According to a UBS Workplace Voice report, 80% of senior executives overseeing retirement plans expressed concern about needing additional resources to manage SECURE 2.0 changes. More than half are considering switching advisors within the following year. However, this movement is not purely about compliance. More than half of plan sponsors are also looking for a higher service level and more comprehensive assistance for their employees. [i]
Specialist Versus Generalist Retirement Plan Advisors
While changing advisors requires time and effort, there can be significant risks associated with staying with a current advisor. That’s especially true if your advisor lacks up-to-date knowledge of industry trends and new regulations enacted as part of SECURE 2.0.
This risk is highest for those plans that use generalist advisors. Plenty of great local financial advisors primarily help individuals but end up servicing local retirement plans as well. While they can be extremely competent at wealth management, the problem is one of specialization. The retirement plan landscape includes significant liability risk for you as the plan sponsor. Advisors who handle a few retirement plans may not have a broad enough knowledge of regulations and best practices. And if they only manage a few retirement plans, they may not be immersed in industry trends. This might unknowingly put your organization and plan at risk.
Risk vs. Reward: Staying Put
Of course, sticking with your current advisor has its advantages. Your current advisor understands your plan’s history and intricacies, providing stability and continuity. Maintaining a consistent relationship can ensure steady administration without disruption.
The Case for Switching Retirement Plan Advisors
However, if you’re not getting the level of service or compliance you need, switching to a new advisor can substantially benefit your organization and your employees. Advisors with specific knowledge of SECURE 2.0 can navigate complex regulatory landscapes more effectively, reducing compliance risks.
But benefits can go far beyond compliance. According to Fidelity Investments’ 14th Plan Sponsor Attitudes Study, plan sponsors value improved participant outcomes (44%) and administrative support (43%). [ii] That’s not a surprise since advisors who provide comprehensive services and participant support can help you attract and retain top talent.
Despite these benefits, switching advisors also comes with risks. Changing advisors can be time-consuming and may initially disrupt plan administration. That’s why it is critical to take the time upfront to find a firm that can most effectively address your team’s needs.
Staying Ahead of Litigation
New lawsuit filings appear to be slowing down this year, which is great news for plan sponsors. Unfortunately, many firms have been quicker to settle claims rather than litigate, which will likely do little to slow the trend too much.
This constant threat of litigation means that plan sponsors and their advisors must remain diligent in monitoring different aspects of retirement plans. Working with an advisor knowledgeable about preventing potential legal issues can provide substantial peace of mind.
Some Retirement Plan Advisors Can Share Your Liability
A further critical reason to switch is if your current advisor does not serve as a fiduciary to your plan. Working with a true fiduciary—one who is legally obligated to put the participants’ interests first—is paramount for business owners and executives. That’s because you not only have corporate responsibility but also face personal liability if your plan is not managed in the participants’ best interests.
Hiring a fiduciary as a retirement plan advisor offers significant benefits, primarily because they can share your liability. This also keeps them clearly motivated to keep your plan in compliance.
There are two types of retirement plan fiduciary roles. A 3(21) fiduciary acts as a co-fiduciary alongside the plan sponsor, providing investment advice and recommendations without having the authority to make final decisions. This advisor assists in developing the initial fund lineup and reviewing investment selections. Still, the plan sponsor retains ultimate responsibility for the plan’s investments.
One way to lower your potential liability is by hiring a 3(38) fiduciary advisor. Unlike a 3(21) fiduciary, a 3(38) fiduciary has the discretionary authority to manage your plan’s assets, making investment decisions on your behalf. This level of responsibility significantly reduces your liability as the plan sponsor, as the 3(38) advisor assumes much of the risk associated with investment decisions. By delegating these responsibilities, you free up your time and have an accountable team of professionals handle the complexities of your retirement plan.
Of course, that doesn’t mean you’re off the hook. You’re still responsible for overseeing their actions and ensuring the plan is managed appropriately for your participants.
Prioritizing Participant Outcomes
While liability prevention is crucial, the primary goal of any retirement plan should be to achieve the best outcomes for participants. This requires a shift in mindset from focusing on avoiding lawsuits to emphasizing prudent investment selection and support that benefits participant returns. Effective retirement plan investing should be straightforward and reliable, always prioritizing the participants’ long-term financial security.
Questions to Ask
To decide whether to change retirement account advisors, consider how well your current advisor is meeting the needs of your plan and participants:
- Are your retirement plan investment options performing well in comparison to benchmarks?
- Does your advisor have a system that can help identify funds more likely to falter, so they can be swapped out with a better option?
- How thoroughly is your current advisor addressing SECURE 2.0 Act changes?
- Are you receiving proactive service and comprehensive support from your current advisor?
- Does your advisor provide high-quality support to plan participants?
- Does your advisor act as a legal fiduciary to your plan, and in what capacity – 3(38) or 3(21)?
- Are your advisor’s fees reasonable and transparent?
All of these factors are important to evaluate. Bottom line, with so much on the line, it is wise to get a second opinion. Most retirement plan advisors will provide that free of charge. Since there’s no cost, it’s a great way to double-check to see if you’re missing anything or if a new firm could better serve your plan.
Key Takeaway
Evaluating your retirement plan advisor is not just a strategic decision—it’s a fiduciary duty. If you’re considering a switch, it’s essential to do so carefully. While liability prevention remains a critical issue, prioritizing what is best for participants should be your guiding principle. After all, the ultimate goal of a retirement plan is to provide the best possible outcomes for your valued team.
Are You Getting the Right Retirement Plan Advice?
Invest a few minutes today to ensure your retirement plan is in the best hands. Contact us for a complimentary consultation to see if we can help enhance your plan’s performance and reduce your potential liability.
[i] https://www.planadviser.com/plan-sponsors-seeking-advisers-secure-2-0-know/
[ii] https://newsroom.fidelity.com/pressreleases/rising-plan-complexities-create-opportunities-for-greater-advisor-impact–according-to-fidelity–stu/s/b2f8823c-7980-4409-83fc-9266f1fc35eb
