Why You Need A Specialist
Imagine that you have a pain in your knee. You do everything you can yourself to make it go away with pain relievers, ice, heat, stretching, and walking. Yet, the pain is still there after all of your best attempts. You’d likely visit your family doctor next to see what she thinks about the situation. After a discussion and examination, she determines you may need surgery, but that’s not her specialty and refers you out to an orthopedic surgeon who examines, diagnoses, and conducts the procedure.
What seems odd about this scenario? I would say NOTHING! And not only that, but I think it sets a good model for how to evaluate selecting a 401(k) advisor for your company’s retirement plan.
First, as the plan administrator or named fiduciary of the plan, you’re likely to leverage your knowledge to the max in dealing with the plan yourself. That entails your experiential knowledge and your ability to search the web. However, you may be limited in knowledge about retirement plan rules, regulations, and legislation. Additionally, not all 401(k) plans are the same! Your last company's 401(k) is very likely different than your current company's. You probably didn’t learn what a protected benefit was when you were in your teenage years. Thinking back to you knee example, have you ever iced an ailment when it should have heat? What about taking a pain reliever vs anti-inflammatory. Have you self-diagnosed accurately on WebMD? We can only get so far on our own before we need to seek help from a professional in a certain field.
Next, let’s talk about your family doctor. She likely knows a little about a lot. The cues and clues to your run-of-the-mill ailments are things she sees day in and day out. They are easily assessed based on her education, experience, and daily work. But when your issue surpasses her knowledge and skill, she refers out. This is expected and wanted by you, the patient. Just because a doctor can practice medicine, doesn’t mean she should practice all types of medicine on all people. However, when it comes to the world of financial advisors, it’s often not the case. Some advisors may think “I have a license that allows me to work with investments, therefore I can assist on a 401(k) plan!” The reality is a 401(k) goes so much deeper than investments. In my experience, I would say investments makes up about 10% of the bandwidth of the plan, with the rest going to participant education, data and compliance issues, non-discrimination testing, 5500, required notices, plan design, plan governance, etc. Does the advisor possess the skills and experience to go beyond just investments, or are they a specialist?
Finally, we have the surgeon. This is the guy who did extra schooling and spent time focusing specifically on this one area of medicine. Can he help with general family doctor type issues, yes, to some extent. But can he go much deeper on his speciality and provide more value based on his experience and training - absolutely. Likewise, an advisor who has dedicated the time to understanding the 401(k) landscape and has the experience of going deeper on plan issues/topics that can be of much more value to you, the plan sponsor. Don’t settle for a generalist when you need a specialist, especially when you evaluate the fees of each.
Remember, you’re paying the advisor for a service and they should be offering the right services to your specific needs, at the right price. You have a fiduciary duty to monitor the advisor in order to get the best bang for your buck.
Are you self diagnosing or have a generalist helping you now? If so, feel free to book a meeting with me to discuss your situation and how I can help!
