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Are You (Just) a Retirement Plan Monitor?

A recent ad campaign focuses on the distinction between identifying a problem and actually doing something about it.

In one version a so-called “dental monitor” tells a concerned patient that he has “one of the worst cavities that I’ve ever seen” before heading out to lunch, leaving that cavity unattended. Another features a “security monitor” who looks like a bank guard, but only notifies people when there is a robbery.

As an industry, we have long worried about the plight of the average retirement plan participant, who doesn’t know much (if anything) about investing, who doesn’t have time to deal with issues about their retirement investments, and who, perhaps as a result, would really just prefer that someone else take care of it.

What gets less attention — but is just as real a phenomenon — is how many plan sponsors don’t know anything about investments, don’t have time to deal with issues about their retirement plan investments, and who, perhaps as a result, would — yes, also really just prefer that someone else take care of it.

Of course, if many plan sponsors lack the expertise (or time) to prudently construct such a plan menu, one might well wonder at their acumen at choosing an advisor to do so, particularly when you consider that surveys routinely show that plan sponsors choose an advisor primarily based on the quality of the advice they provide. One can’t help but wonder how that advice is quantified (certainly not in the same way that investment funds can be), and doubtless, that helps explain why so many advisors are (apparently) hired not on what they know, but on who they know.

But for many plan fiduciaries, the obstacle to hiring a retirement plan advisor is financial, not intellectual. Particularly for a plan sponsor who has not previously employed those services — or, more ominously, in the case of one who has hired an advisor that didn’t hold up their end of the bargain — the additional costs of hiring an advisor can be problematic. The question asked of a prospective advisor may be, “Why should I hire you?” But one can well imagine that the question that is often unarticulated, and perhaps the real heart of the matter is, “Why should I pay you (that much)?”

There are ways, of course, to quantify the value of those services, ways that quantify not only what that advisor is worth, but why those fees are what they are. Some advisors promote their services as a shield against litigation, or at least some kind of buffer against the financial impact of such an event, but in my experience, while most employers are glad to get/take the “warranty” (implied or explicit), they often aren’t willing to pay very much extra for it.

In the most obvious case, you can walk in and demonstrate the ability to save a plan money by upgrades to the menu, a change in providers, or perhaps even a better negotiation of the current arrangement. That’s clearly added value, and value that is readily measured (though it has a finite shelf life). Assuming, of course, that the plan sponsor is ready, willing (and in some cases, able) to act on those recommendations.

Indeed, most of the attempts to affix a value to having an advisor tend to focus on investment returns or cost savings for the plan. Both are valid, objective measures that can have a real, substantive impact on retirement security for participants, and fiduciary peace of mind for the plan sponsor. Similarly, the ability to increase plan levels of participation, deferral, and investment diversification also adds value — quantifiable value, particularly measured against goals and an action plan for achieving them that is clearly articulated, and updated, up front. Ultimately, it’s about more than identifying issues and problems, it’s about having a plan for the plan, and being willing to be an agent for change in pursuit of it.

The “monitor” ad closes with the admonition, “Why monitor a problem if you don’t fix it?”

Indeed.

See also: "The Value of Good Advice."

 

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