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The Top 4 Best Practices of 401(k) Advisors

Stace Hilbrant, Managing Director and Founder of Chicago-based 401k Advisors, identifies the four most important and effective things he sees the very best advisors doing to help their clients.

1. Focus on 401(k) Participants

After “surviving” 408(b)(2), 404(a)(5) and the Pension Protection Act and accepting the general acknowledgment that Americans are critically underprepared for retirement, it has become an industry best practice to retain a firm or adviser who focuses 100% of his attention on the 401(k) plan and the participants in those plans, says Hilbrandt. Many plan sponsors are working with their advisers to create a “fiduciary brick wall” between 401(k) plan services and other services they receive, such as insurance.

2. Rollovers Done Right

The best firms have found ways to help plan participants become very well educated about the options available at retirement or job-change time. Well-informed participants can work with the advisor, who assists them in going directly to the providers of rollover products, such as investment and annuity vendors — without an intermediary taking commissions off the top.

Hilbrandt notes that this focus on the 401(k) plan participant has helped weed out brokers who used their clients’ 401(k) plans to sell rollover annuity products or encouraged participants to take their assets out of plans after age 59-1/2 — all with the goal of earning a higher commission.

3. Educate Differently

The very best advisors have learned that the most effective educational support is personalized and customized for the target group and teaches subjects such as how to calculate your progress towards retirement readiness. “Ten years ago, the best advisors were those with the thickest and most impressive quarterly report books,” Hilbrandt notes. “Today, the best advisers are those really helping all plan participants prepare themselves and their families for retirement.” Providing creative and novel ideas about how participants can get out of credit card debt and reduce non-critical spending (such as cable TV and cellphones) can help participants free up 401(k) plan savings that they didn’t know existed, he suggests.

4. Vendor Reviews Every Three Years

Today, the best advisors and firms are conducting formal vendor reviews approximately every three years, as part of a fiduciary governance best practice, says Hilbrandt. The data from these vendor reviews becomes part of the client’s fiduciary audit file for long-term archival and storage. It also provides a framework for judging the reasonableness of fees as required by the new fee disclosure regulations.

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