A successful 401(k) program should be designed to assist the Plan
Sponsor fulfill its duties as a fiduciary and help participants achieve
retirement readiness. By working in
partnership with an advisor all key areas of plan operations should be reviewed
including – plan design, recordkeeping, compliance testing, participant access,
fund selection, investment policy statement, performance monitoring, custody,
and tax reporting. An advisor can best achieve this goal by using an open-architecture
platform that allow for virtually any investment option at the lowest cost
possible.
The number one reason why a Plan Sponsor will switch to a
new retirement vendor is the availability of investment options. The second most common reason is fees. By
using a true open architecture platform advisor’s can find the most appropriate
investment options from mutual funds to Exchange Traded Funds (ETFs) to outside
money managers. For advisors managing non-401k assets the available of choice
is paramount but somehow these same options have not translated to small 401k
plans. An advisor would never use a
broker/dealer or custodian with only 100 mutual funds to offer their clients
but more than 60% of advisors will do this for 401k plans.
Each
participant has a different need based upon his or her age, risk tolerance,
time horizon and investment experience. Investment options should be designed
to suit a variety of investors. There are three types of participants.
“Do
It Myself” investors believe with the appropriate investment options and low
cost they can build a portfolio on their own.
“Do
It With Me” investors want to work with a financial advisor to build their
portfolios from the plan’s investment choices.
“Do
It For Me” investors may find value in target risk models or target date funds
that are designed to provide asset allocations uniquely suited to their
investing needs at the time.
The
platform should allow for research, technology, and investments that is at
least equal to what a small investor could find when opening a self directed
IRA at Schwab, Fidelity, or TD Ameritrade directly. Providing participants with
impactful tools for advice and planning for retirement is essential to help
participants achieve their retirement goals. Participants are more likely
to realize their retirement objectives when presented with an easy to
understand language, simple web-based interface access to their account
information that is integrated with a retirement planning tool.