If you are an employer who offers a 401(k) retirement plan for your employees, working with the right advisor is crucial to the plan’s success. There may come a time when it becomes necessary to change the advisor who manages your plan, for any number of reasons. Once an employer has identified the need for a change of advisors, how do they go about doing so?
This article will provide readers with guidance on how an employer can change their 401(k) advisor, by outlining the following:
We hope that you never encounter the need to change your 401(k) plan’s advisor, but this article will help you understand the process should that need arise.
There are several reasons why an employer might consider changing their 401(k) advisor:
When considering changing your 401(k) advisor, you should begin by exploring your options and assessing the market. By knowing what other advisors offer, you can make an informed decision and potentially find a better fit for your plan and participants' needs.
When comparing advisors, consider factors such as:
Knowing the other options that are available may give you the room to negotiate with your current advisor if fees are the main point of contention. If there are other issues at play, doing your due diligence will help you make an informed decision based on the needs unique to your company and plan.
Before making any changes, it's important to benchmark your existing 401(k) advisor and plan against industry standards. You should evaluate the key metrics of your plan such as investment performance, fees, participation rates, and employee satisfaction. This benchmarking process will help you identify areas where improvements can be made and provide a baseline for comparing potential new advisors.
If the cost-efficiency of your plan is the issue, compare the fees charged by your current advisor with industry averages for similarly-sized plans to see if they are reasonable. Assess the transparency of fees and consider whether alternative fee structures, such as flat fees or fee-for-service models, would better suit your plan's participants and needs.
Evaluate the performance of your current 401(k) plan's investment options. Compare their returns to relevant market benchmarks and industry standards. Look for consistent performance over the long term and consider whether your current advisor has the expertise and resources to provide superior investment options.
If the overall market is in a down cycle in which investments are performing poorly across the spectrum, changing your plan advisor may not result in positive outcomes. If the funds offered by your plan are performing more poorly than the rest of the market, however, a change may be what is needed.
The quality of service provided by your 401(k) advisor is crucial for plan success. Evaluate the accessibility and responsiveness of your current advisor, their ability to address participant inquiries, and the level of educational resources that they provide for your plan participants.
Consider whether your plan requires additional services, such as financial wellness programs or personalized participant guidance, and assess whether potential new advisors can fulfill those needs. Advisors will often put a lot of effort into gaining new clients, so this may be an area where you can make providing the needed resources a determinant of their winning your business.
Once you have thoroughly evaluated your current advisor and explored outside options, you may come to the decision that it is time to change your 401(k) advisor. Follow these steps to facilitate a smooth transition:
When changing your 401(k) advisor, it's important to consider the following aspects:
Changing your 401(k) advisor is a major decision that should be driven by the best interests of your plan participants. Before making the determination to change your advisor, you should take the time to assess your current plan’s performance, fees, and the level of service provided by your current advisor. Compare them to industry benchmarks to verify that better options may be available for your employees.
You should take the time to explore alternative options, conduct due diligence on potential new advisors, and consider factors such as fiduciary responsibilities, investments, service levels, participant access, cybersecurity, and fees. Don’t rush the process and switch to the first advisor that you find, as you want to find the best available option for the benefit of your plan participants.
By thoroughly evaluating your options and following a well-planned transition process, you can make a smooth switch to a new 401(k) advisor that better aligns with your plan's goals and enhances participant outcomes. A 401(k) plan is a benefit to your employees, so put in the effort to make it the most beneficial to their retirement outcomes possible by finding the right advisor to manage it.
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