1. Is the plan advisor a fee-only investment advisor, a fee-based financial advisor or a stock broker? Why is this important?

A fee-only advisor has minimal conflicts of interest. If your plan’s advisor is “fee-based” or a traditional broker, he is being paid by someone other than the person who is benefiting from his services and this creates an inherent conflict of interest. An advisor cannot impart unbiased investment advice while receiving compensation from mutual funds or other investment companies for steering clients into commissioned funds and proprietary investments.

 

2. Is the plan advisor signed on or willing to sign on as fiduciary to the plan?

If you have a separate contract signed with the advisor, it should state whether he has signed on as a fiduciary. As a general rule, brokers will not or cannot sign on as a fiduciary where as a Registered Investment Advisor (RIA) will typically assume this role.

 

3. Are all the plan’s fees, commissions and expenses disclosed? Are there any soft dollar arrangements?

The most common questions I hear from business owners are where are all these fees and why are they hidden. It’s difficult to find all the fees in a “closed architecture” 401K plan. For IRA accounts, this is usually relegated to mutual fund sales loads.

 

4. Is the plan provider different from the investment management advisor?

Usually a separate contract with the plan advisor indicates they are independent from the plan provider. This is important because if the plan advisor is not independent, there is a conflict of interest. Why would you want someone who has a conflict of interest and put’s their own interest ahead of your plan participants?