Speaking at the 2015 PLANSPONSOR National conference, Judi Leccese, retirement plans manager at Cabot Corporation, outlined the process of searching for a retirement specialist adviser.
Before sending out any requests for proposals (RFPs), Leccese said, check in with the plan committee first. Establishing a checklist of desired traits can guide the questions contenders will be called on to answer. Does the plan need a 3(21) or 3(38) fiduciary adviser? Will the adviser be called on to help with a defined benefit (DB) and/or defined contribution (DC) plan? These are all important to determine before launching the adviser search.
Different plans require differing amounts of investment advice and consulting on plan design and strategy, Leccese noted. “The vendors who ask you questions, to determine how best to serve your plan, are often the best,” she said.
Is there a particular situation you need help with? Ask possible advisers if they have dealt with something similar before, urged Stephen Popper, managing director of SageView Advisory Group. Whether help is needed for mergers and acquisitions or for servicing plans put in place across multiple locations, there are advisers with great experience in each segment.
Rita Fiumara, first vice president, investments, UBS Financial Services Inc., suggested looking for specific designations, like the certified investment management analyst (CIMA) title. An adviser should be trained to give the committee advice that is based on modern portfolio theory and the standards established by the Department of Labor (DOL).
A retirement plan adviser should be an extension of the investment committee and human resources team, she said. The sponsor needs someone who knows their plan’s objectives and employee dynamics, and whose resources and capacity are sufficient to meet their particular needs.
Many plans don’t give themselves all due authority when it comes to their interactions with the adviser. The thing to remember, Popper added, is that “at the end of the day, we work for you guys.” A good fit is important, and the sponsor should think of the adviser as an employee to get the best services for the plan.
NEXT: Who’s going to jail?
Leccese has a 3(21) adviser. As she put it, her company wants to be shown the road, but to drive the car. Understanding what different advisers can do for a plan, and how much fiduciary responsibility a sponsor can pass on, is a critical factor when evaluating advisers and advisory models.
Of the 3(21) designation, Popper said, “co-fiduciary is a made-up word. … It means we’re all going to jail together.” The co-fiduciary relationship means that the adviser provides investment advice, but the plan is ultimately responsible for acting, or not, on those recommendations.
A 3(38) adviser takes more discretion within the plan, so the plan sponsor only retains fiduciary responsibility for selecting and monitoring the advisory firm. That set-up is less common and more expensive, Popper said, but can be especially beneficial for entities that have no investment ability, such as church plans.
You’re either going to be monitoring your investments, or you’re monitoring the adviser and the firm, Fiumara explained. Know what services you want and need for your plan; if someone’s fees and services also meet your checklist, that’s a home run, she said.
After that, get a copy of the firm’s contract. What type of insurance do they have? Do they name themselves as an Employee Retirement Income Security Act (ERISA) fiduciary? Have your attorney review the document to make sure that the contract includes the services you agreed upon during the negotiation process, that the people you met with are the ones you will work with day to day, and that there are no prohibited transactions.
NEXT: Practical advice.
Everything is interconnected, Fiumara said, so make sure the adviser is giving advice that providers are equipped to follow. This is especially important if the recommendations are documented—be wary of “best practices” the plan cannot adopt due to business restrictions or any other reason.
Being an adviser is about more than just participant outcomes, Popper said. The adviser has to protect the plan sponsor and fiduciaries as well. He suggested the best defense against litigation is a good offense—automatic enrollment into a qualified default investment alternative (QDIA), such as a target-date fund (TDF), plus auto-escalation. “You can ask your adviser for a lot more now than you could 10 years ago,” he said, and the market seems to be at the bottom of the recent fee compression trend.
Your committee likely wants to meet for an hour every quarter and make decisions, so find an adviser who is willing to do the grunt work separately, then report on progress during the meetings. Many advisory firms can take on a lot of tactical work, and doing so integrates them further into a client’s culture and community, making them better informed in that work. A better adviser dynamic can result from understanding personally what your colleagues’ needs are.
Finally, Leccese suggested, to determine if they’re a good fit—and discover what the firm’s limitations are, functionally and interpersonally—ask potential candidates, “What won’t you do for me?”
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