Photo by Shamus Pons
We’ve finally come to the last leg of our journey through the world of company sponsored retirement plans – the financial advisor. The reason I refer to them as “the Face of the Plan” is because they are indeed who your employees will recognize and visually attach to their retirement assets in these cases. Financial advisors provide a point of contact, information, education, and communication (along with the plan provider) to your company and your employees. When employees have questions about their investments, they should be calling the advisor directly – NOT some 800 number.
Advisors should help perform basic services like enrollment, annual meetings, and hopefully treat each employee like an individual client. Many times have I seen plans where the advisor (who is often the person responsible for having sold the plan in the first place) becomes very scarce following the initial enrollment. Some only pop up again when it’s time for the next enrollment period, but in between these events, many tend not to be terribly proactive. These advisors are usually classified as “transactional”. They sell a plan and move on. The ongoing needs get picked up by either the TPA or the plan sponsor or both.
Initial enrollments for employees should be a time consuming practice. I prefer the one-on-one approach with participants whenever possible. Getting to know each one’s unique financial situation and personal goals is very important to rendering the best and most appropriate advice. Out of 100 people, you can usually expect about 7-10 to be self-directed, meaning they will decline any help from the advisor and elect to choose their own allocation. A good advisor should also help folks decide just how much of their paycheck is most appropriate to defer.
Let’s walk through what a new plan would generally undergo from the advisor perspective…
Once the advisor, TPA, and sponsor have come to an agreement on the best plan design, enrollment meetings are scheduled. In the interim, assets are transferred from the old to the new provider (if it’s an existing plan and if the provider is changing). If open enrollment is July 1st for example, then the enrollment meetings should be held at least two weeks prior to that on June 15th. A smart advisor knows you almost never get everybody at one meeting on the same day unless the plan is very small. You need time to make sure you get around to everybody BEFORE the enrollment date. Once collected, all those enrollment forms have to be delivered to either the TPA and/or plan provider so the individual accounts can be established before the first paycheck hits following the enrollment. Electronic enrollment is also an option, but is typically reserved for large plans.
A normal enrollment for our firm begins with a group meeting with as many employees we can muster into one room at a time. We discuss general provisions of the plan (matching, safe harbor, profit sharing, pension, loans, Roth or Traditional deposits, etc…) as they apply. We also have enrollment books in front of everyone at this time and ask that they fill out the basic personal information on the forms. Afterward, we do a Cliff’s Notes of the investment selections and the basics of how to read their performance reports.
It’s after this big general meeting where the wheat separates from the chaff. A lot of advisors will say, “OK. Pick your investments or take the risk assessment quiz to tell you what you should buy. Turn in your forms when you’re done.” Or, “Just go online to this website and it’ll walk you through it.” What SHOULD happen is this, “OK. We’re going to be here all day long and encourage everybody to spend at least 15 minutes with one of our advisors so we can help you select the right investments.” Now this takes a great deal more effort on the part of the advisors, but in the end, you have far more confident and typically much more satisfied employees. Certainly if people want to self-direct or use a website tool, they are welcome to.
If the advisor is REALLY good, he will encourage even more extensive meetings with each employee and his/her spouse in order to really dig in and help them develop a comprehensive financial plan. Now, don’t be fooled CEOs, executives, and HR managers! There are a lot of advisors out there who will spend oodles of time wooing you, but no time trying to work with your lower level staff because they don’t see much money in it. Make sure you have an advisor who is going to treat everyone equally. Remember, this is a 401k for EVERYONE.
As an addendum next month to this series, I’m going to go into some strategies to use as a participant in your 401k that could be of great help to you in retirement.