Take into account all costs including set-up, maintenance, recordkeeping, administration, investment expenses, revenue sharing and hidden costs. In order to avoid a prohibited transaction exemption, ERISA requires that costs must meet a test of reasonableness for service arrangements Does your plan meet this test?
Finder's fees, 12b-1 fees, revenue sharing, indirect compensation or commissions – your provider should disclose any and all up front and in writing.
You need to know how your plan stacks up against other companies that look like yours. Beware of companies that provide their own benchmarking.
Are you limited to the mutual funds of just one fund family or insurance company? How about ETF's or index funds? Reach higher – look for an independent advisor who can offer you an unlimited number of options, while tailoring the best list for your company
Under many plans you may be held personally responsible for plan management and advice – are you prepared to take that hit? If not, look for a registered investment advisor that will act as a fiduciary, and advisors with an AIF®, QPRS®, or AIFA® designation.
Only a registered investment advisor is required under the law to be: (1) objective and (2) held to a fiduciary standard. Ask your consultant for form ADV part 2, a required disclosure document.
Fiduciary advisory agreements should be in writing and provide important clarification of roles and responsibilities.
ERISA Advisor bonds protect employee benefit plans from the risk of loss due to fraud or dishonesty. It's a plan must-have – ask to see the bond.
This is professional coverage that will protect the plan if the consultant fails to meet his fiduciary duties. It's another program must-have.
Setting up a 401K is complex. It requires compliance with serious fiduciary procedural requirements. New US Department of Labor rules are being implemented for 2012 and beyond. You don't want a generalist or a sales rep.
401K participants want and need advice. The CFP™ designation is the standard for general financial expertise and ethics. Also, only Registered Investment Advisors are legally allowed to provide advice.
Look for a minimum of 10 years of experience to cover all recent market fluctuations.
Do your due diligence. Check the consultant with the SEC, FINRA and the individual licensing agencies. Most of these agencies have Web sites designed to help you in this process and some companies provide due diligence screening such as the:
Certified Financial Planner Board of Standards, Inc.
Financial Industry Regulatory Authority
Securities and Exchange Commission
North American Securities Administrators Association
National Association of Insurance Commissioners
