Should I hire a financial advisor before starting a small business 401(k) plan?

Should I hire a financial advisor before starting a small business 401(k) plan?


Sponsoring a workplace 401(k) plan can be a little unnerving if you’re not a financial expert or you’re apprehensive about the decisions you’re asked to make. With all the recent hullaballoo about new fiduciary standards and so many rules and regulations to follow, many 401(k) plan sponsors feel overwhelmed without help on their side. Luckily, help is available. Financial advisors can act as a guiding light for plan sponsors, and hiring one may help alleviate any initial concerns or confusion you have.

Do I need to hire a financial advisor for my retirement plan?

While you are not required to hire a financial advisor when implementing an employer-sponsored 401(k) plan, there are a number of advantages in choosing to do so.

In the broadest sense, a financial advisor is a local, trusted point of contact for the plan and can provide “face-to-face” interactions with plan participants. For plan sponsors, that means having both a sounding board and a guide in establishing a retirement plan. Financial advisors may also provide:

  • Plan design and strategies that provide hiring/employee retention incentives, encourage conversations about participant wealth building, and actively maintain plan due diligence procedures and documentation

  • Technical support that provides ongoing plan monitoring and evaluation to keep investment options up-to-date and plan fees in line, as well as employer guidance on tax advantages the plan offers

  • Education materials for plan sponsors and participants about finances and using the 401(k) plan to its best advantage

With all of the upsides, it’s easy to overlook any important potential downsides. However, it’s important to weigh out both the pros and the cons before arriving at a final decision.

Financial advisors cost money, and the expense you incur will ultimately increase plan fees. In order to accurately weigh the value of partnering with a financial advisor against the cost of the benefit, it’s essential to vet—or research—an advisor for their retirement plan knowledge and experience.

How do I vet a financial advisor?

When selecting a financial advisor, look for someone who possesses the knowledge base to assist you with the appropriate fiduciary tasks or who offers a retirement plan that has a fiduciary service included.

Some key criteria a potential financial advisor partner should possess includes: 

  • A thorough understanding of the laws and compliance regulations surrounding 401(k) plans

  • A well-defined strategy for supporting the day-to-day operations of a 401(k) plan

  • Assistance with preparation of the plan Investment Policy Statement (IPS)

  • A willingness to provide decision-making support in considering which decisions are in the plan participants’ best interest and identifying all possible courses of action

  • A demonstrated ability to select diversified investment offerings for your plan

  • A game plan for increasing participation rates and offering participant education

In some instances, financial advisors can help you select the 401(k) plan that makes the most sense for your individual needs and goals. However, that doesn’t mean you have to choose a financial advisor in order to access the benefits of an employer-sponsored retirement plan. The decision is ultimately your own, but should still be guided by the best interests of your plan participants.

Providing a workplace 401(k) plan is a big responsibility, so let’s talk about how you can best proceed with or without a financial advisor. Contact us at 800.236.7400 today, and let’s get the conversation started.