How 401(k) Financial Advisors Can Breakthrough to the "Next Level".

Starsky had Hutch, Cagney had Lacey, Fred had Ginger, Bogie had Bacall, Bonnie had Clyde, Bert had Ernie, Baskin had Robbins, and Sheriff Bart had the Waco Kid. Whether it's law enforcement, entertainment, or any type of business, there are times when you need to partner up and find a good partner. With a retirement plan industry that requires sophistication and transparency, it is highly recommended that financial advisors team up with other retirement plan service providers to better serve the needs of the client plan sponsor and to serve as a resource for the financial advisor to augment their retirement plan advisory business.

No reason to leave a provider to save just a couple of bucks.

  Ever since I graduated school, I have gone to the same car mechanic for the past 16 years. Maybe Ralph is a couple of dollars more than someone else, but he's always honest. He's the type of businessman who shows that trust and good work is its own reward when you have such loyal customers such as myself. I'm not going to use a car mechanic who is 5 dollars less because my loyalty and faith that I'm not going to get ripped off is worth more than 5 dollars.

Yet I'm surprised when plan sponsors replace a good plan provider for something as little as 5 basis points. The work of a good retirement plan provider is certainly worth 5 basis points more or whatever is that negligible amount that the plan sponsor is going to save by using the plan provider across the street.

Again, plan sponsors must pay reasonable plan expenses. That means they don't have to pay the lowest plan expenses. Plan sponsors who make a change of plan providers for something as little as 5 basis points end up costing themselves more than 5 basis points when the new plan provider isn't as competent as the old plan provider.

How Good the Advisor is often based on how well they play with other plan providers. 

It's usually a sign.

  What makes a good retirement plan financial advisor? Well it takes an attention to detail, an understanding of what the role to entails, and a dedication to the client. In addition, what I find is the way a good financial advisor handles other retirement plan providers.

A good financial advisor will use other retirement plan providers to act as part of their team to offer the best overall retirement solution to their client. They will lean on the third arty administrator (TPA), ERISA attorney, or auditor to assist with their clients and use them as a resource for any questions they may have, as well as a sales resource for potential clients. When I was working for a New York TPA as well as in my practice today, I have helped advisors with potential clients. It's a feather in an advisor's cap as it shows a potential client that they offer white glove treatment if they can get a TPA and/or ERISA attorney to offer assistance without being retained first.

The not so good financial advisor sees themselves as an island, they are very possessive of their clients and are very wary of any provider encroaching on that client. They also have no use for any other retirement provider because they don't value what they bring to the table. They only see other retirement plan providers as referral sources which they are not because most of the referrals that these providers receive are from other financial advisors and in the rare case that they get a direct referral from a plan sponsor, they are only going to refer that client to financial advisors that they have a longstanding relationship with.

Financial advisors should target a few TPAs that they can work with and rely on with any proposals or any questions for potential clients and to assist current clients. They should also seek out an ERISA attorney who has an eye in developing relationships with the hope of getting business later, rather trying to charge for every phone call and every consultation. See them as part of your team to help augment your sales team, but they likely won't be your sales team.

An Education Policy Statement is not Magic.

But it's nice marketing.

  Any type of item that keeps you in health is a good thing as long as you use it. So the floss I bought after my last checkup and the exercise equipment that I bought my wife a few years ago that is collecting dust are meaningless if they are not being used.

The same can be said about an educational policy statement that many retirement plan financial advisors are trying to draft for their clients or use as a way to solicit business.

In a nutshell, it's a gimmick. Not a rip-off like the fiduciary warranty, but it's not magic because any advisor could help plan sponsors draft one.

An educational policy statement (EPS) mimicked of course after the investment policy statement is really cute marketing, but absolutely of no use if the plan sponsor isn't going to abide by it.  I like the idea behind the EPS, it's always a great idea to memorialize fiduciary decisions with paperwork. I just worry that plan sponsors won't actually provide the investment education that plan participants need in a participant directed 401(k) plan. An EPS is a nice idea on paper, but only effective if it's not just on paper and being used to offer education.