What is your financial advisor’s fiduciary responsibility?

When choosing a financial advisor to manage your most precious assets, it is essential to determine if the financial advisor will accept fiduciary responsibility and to what degree. Most plan sponsors are quite busy with the daily business of managing their company, and do not have time for the extra diversion of becoming proficient with the regulations and many details of offering a 401(k) plan to their employees.

Considering the implications of the fiduciary responsibility that will otherwise default to you, unless you are well versed in retirement plans, IRS Code, ERISA regulations, and investment strategies for the range of your employees’ financial needs, you’ll want to have a 3(21) investment advisor sharing partial fiduciary responsibility with you, or a 3(38) investment advisor taking the full burden off your shoulders. Finding the right financial advisor for your company’s plan is very important!

When you’re interviewing a financial advisor, you should find out if the advisor’s company will accept the legal responsibility and become a fiduciary for your plan, and whether as a 3(21) or a 3(38). In addition, you should expect your financial advisor to access resources that help meet IRS compliance; inquiring about the nature of these resources will help you decide if your company will be sufficiently represented when compliance issues arise. Considering that your company may have a 401(k) committee, it would be wise to inquire if the financial advisor is capable and willing to offer training, education and support to your committee.

Also important is asking about potential conflicts of interest that might occur between the financial advisor and money managers with whom the financial advisor is currently conducting business. It would be helpful to find out if the financial advisor’s company has a written conflict of interest policy, and how strict it is. It will also help you to sleep at night if you were to find out, should you consider hiring this financial advisor, that none of his or her clients have ever been the subject of an investigation by the IRS or the Department of Labor, or if they have, that matters were settled with positive outcomes which do not reflect on the poor performance of this advisor.

Have questions? Not sure if you have the right financial or retirement plan advisor? We can help. Call us at 206-386-5455 or send us an email to schedule a complimentary consultation.

Coming soon: Author Joseph M. Maas of Synergetic Finance will be releasing his next book in the Insight series: 401(k) Insight: Getting to Retired!