How to approach your financial advisor about small business retirement plans

How to approach your financial advisor about small business retirement plans


You’re a small business owner and things have been going well lately. Customers are happy and you’re feeling proud of your accomplishments. You realize the timing is right; it’s time to look into retirement savings plans for you, your staff, and future employees. The problem is words like “fiduciary” and “investment portfolio” intimidate you.  

You have a lot of questions—starting with where to begin. Often times talking to a financial advisor (FA) at the beginning of your decision-making process can ease the stress and get you pointed in the right direction, but meeting with a financial advisor for the first time can be intimidating if you don’t know what to expect. So, follow these seven tips to help you get the advice you need when you meet your new advisor for the first time!

How to discuss a small business retirement plan with your financial advisor

· Be prepared upfront to talk about your retirement goals. 

Know what you want to accomplish and where your employees fit in. You should also be prepared to talk about options. Start with the preliminary talks – it’s always worthwhile to have a plan for your plan.

Tell your advisor your retirement goals, like when you would like to retire and what your ideal retirement looks like, and make to ask questions like, “How will my contributions to the plan affect my take-home pay?” to ensure you’re on the same page. In addition to personal questions, you’ll want to ask about your business too. Find out if your business will qualify for 401(k) tax deductions and what all of your options for customizing the plan are.

· Ask what type of financial services the firm specializes in. 

Find out what services are in the firm’s sweet spot. Are 401(k) plans their specialty, or do they focus mainly on private wealth management? Find out what percentage of their clients they advise on 401(k) retirement plans and if—and when—your financial advisor will do periodic reviews of the plan. As your company grows, will your FA be able to keep up? How open are they to meet with your employees?

· Once a plan is in place, how often should you and your financial advisor meet? 

First think about where you want to spend your time. If you go it alone, you have less time to cover the daily needs of your business. On the other hand, if your FA provides assistance with the management responsibilities of the 401(k) or you are working with a 401(k) plan provider that offers those services, your time commitment will be smaller.

Also ask who will oversee the enrollment meetings, when plans and investment options are discussed, and confirm who will provide the educational and compliancy components for the ERISA §404(c) plans. Will it be you or your financial advisor? 

Discuss your own involvement level. Depending on your personal situation and investment knowledge, you may want anywhere from limited involvement to complete management, or somewhere in between. A financial advisor can help you understand the breakdown of responsibilities and ensure the plan remains compliant. Sponsoring a 401(k) plan can be time consuming and it also places legal responsibilities on you as the plan’s fiduciary. You should leave this meeting feeling that your financial advisor has your back.

· How often will your financial advisor meet with your employees?

You want your employees to be fully engaged with their 401(k) plan. As the fiduciary, part of your responsibility is to provide sufficient information to participants so they can make informed decisions. Ask your financial advisor if they are available to talk to your employees to help with decisions on investment options, risk and returns, fees, and charges. Studies have shown that providing investment education and advice can increase the rate of return of participants. What’s more—when surveyed, four in five adults reported that they would benefit from advice or answers to everyday financial questions [1]. Better informed employees make better investment decisions and in turn, stronger retirement accounts.

· Ask for the metrics. 

As the plan sponsor, you want to know that your plan will help employees save for retirement. Ask advisors if they will share plan metrics with statistical data that demonstrates how the 401(k) plan has improved over time. They should be able to provide metrics—such as participation and deferral rates, average balances, and projected retirement readiness—that you can use to analyze the success of the plan. Plan sponsors want to see their employees thrive in saving for retirement, and metrics are a great way to provide evidence that things are working.

· Understand the fees and how they are going to be charged. 

Every 401(k) plan will have some kind of compensation or fee structure that will affect participants. As more lawsuits are filed against employers regarding excessive fees, plan sponsors should be leery of hidden fees, additional fees, and conflicts of interest. The financial advisor should be proactive and provide transparency so you can easily answer the “how much will this cost me?” question that you and your employees should know.

Ask advisors if they are a ‘fee-only’ or ‘fee-based’ advisor, or if they accept commission on 401(k) plans. Fee-only advisors have no inherent conflicts of interest, they don’t accept fees or compensation based on product sales, and they generally provide more comprehensive advice. However, fee-based advisers may charge both fees and commissions based on the products they sell.

Should you hire a financial advisor to help set up a 401(k) plan?

Once you’ve sat down and had the retirement savings conversation with your FA, it’s time you ask yourself these two important questions:

  1. Is a 401(k) retirement plan right for you and your employees?

  2. Are you willing to take on the full fiduciary responsibilities that come along with the decision?

No matter how you answered, you’ll want to talk to a financial advisor regarding the discretionary authority, or control over plan assets, and the investment management of the plan. These activities put significant responsibility on the plan sponsor and require a reasonable measure of knowledge, experience, and follow-through.

When considering a 401(k) retirement savings plan for your business, asking the right questions of your financial advisor upfront is critical.  You’ll learn what he or she can do for you, as well as what you will need to be responsible for as the plan sponsor.  And don’t worry—you won’t have to go-it alone. 401(k) plan providers like PAi offer services that include education and timely plan-related reminders, so you can remain focused on running your business, not managing a retirement plan. It’s about you and your workers owning their own retirement readiness. Contact us online or give us a call to get more information: 800.236.7400.