Selecting an advisor for your 401(k) Plan (for Physicians and Dentists) | How-to Guides for running your business from Work.com

We present the Federal DOL questionnaire and our insight into each point. For reference purposes, the DOL website link is (http://www.dol.gov/ebsa/newsroom/fs053105.html). As you read this questionnaire, please keep in mind that it is our interpretation that ERISA guidelines intend for a plan Fiduciary to act in the best interests of plan participants. This means conflicts of interest must be avoided at all costs. To the extent they are not, ERISA liability remains with the plan sponsor (physician practice-owners). Plan sponsors are frequently not aware of this. The DOL questionnaire contains 10 questions, but we are restricted in size for this article so we present 5 of the 10. Please see the DOL website or our practice website for the rest. 1) Are you registered with the SEC or a state securities regulator as an investment adviser? If so, have you provided me with all the disclosures required under those laws (including Part II of Form ADV)? If the advisor(s) you are considering working with, works for a Registered Investment Advisor (RIA), you will have the benefit of working with someone/ an organization that has the Fiduciary obligation to act in your best interests. In addition, they must provide you a document - called the Form ADV- documenting insightful information: their education, employment history, any fines, lawsuits, complaints etc, and fee structure – including any commissions or fees paid to them by third parties. Any conflicts of interest will be disclosed in the Form ADV as well. Advisors working for RIA practices are called Investment Advisor Representatives (IARs). If the person you are considering working with is a broker (as opposed to an IAR), they may not have to meet the same standard of care, and may not have to provide insight into their background. 2) Do you or a related company have relationships with money managers that you recommend, consider for recommendation, or otherwise mention to the plan? If so, describe those relationships. This is helpful in unearthing conflicts of interest that may influence the advisor’s point of view. Clearly if the person /organization you are considering for advisor has a relationship with a brokerage, money manager, or fund company, this may influence their product/service selection. It is in your best interest to understand this. 3) Do you or a related company receive any payments from money managers you recommend, consider for recommendation, or otherwise mention to the plan for our consideration? If so, what is the extent of these payments in relation to your other income (revenue)? Clearly if an advisor receives payments from money managers/ fund companies there may be an expectation of preferential selection / bias. At least one national brokerage had arrangements with mutual fund companies whereby the brokerage received many millions of dollars per year for preferred access to the brokerage salesmen (brokers). Failure to disclose information of this nature may present a breach of Fiduciary responsibility on behalf of the advisor. 4) Do you have any policies or procedures to address conflicts of interest or to prevent these payments or relationships from being a factor when you provide advice to your clients? This is an excellent question because it helps you to understand whether there are conflicts of interest. Indeed a Fiduciary must take steps to avoid conflicts of interest- not just identify them. Working with an advisor with a policy of avoiding conflicts of interest is a good idea. 5) If you allow plans to pay your consulting fees using the plan’s brokerage commissions, do you monitor the amount of commissions paid and alert plans when consulting fees have been paid in full? If not, how can a plan make sure it does not over-pay its consulting fees? There is an easier solution to this problem: don’t select products (mutual funds) with commissions. Instead, consider working with advisors with a clearly defined fee structure documenting how fees are earned.
Jeff Seymour CFP® BSc. Eng. is Managing Director of Triangle Wealth Management. His practice serves Physicians and Dentists with group retirement plans, private wealth management, asset protection, and procurement consulting. He may be reached from their website (www.doctorwealth.com), or at 919 469 3600.

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Guide to Selecting an advisor for your 401(k) Plan (for Physicians and Dentists)

How to reduce costs and ERISA liability in your 401k plan.