Most employer plan sponsors use an investment adviser to help them with their 401(k) plans. This is a smart decision since most advisers are able to save plan sponsors at least as much as they charge in fees each year. How can you tell if you are working with a good investment adviser? Top advisers:

  • Sign-on to your plan as a fiduciary. This service has now become a litmus test for hiring an investment adviser. Simply stated, you should not hire or work with an adviser who will not sign on to your plan as a fiduciary.
  • Have a clean background. Investment advisers who have been sued in the past are likely to be sued in the future. You don't have to work with problem advisers. Check the background of your investment adviser, or an adviser you are thinking of hiring, using BrokerCheck. BrokerCheck is a free service provided by the Financial Industry Regulatory Authority, a financial industry regulatory agency under the direction of the Securities Exchange Commission. Any violation you find on the BrokerCheck website for your existing adviser should cause you to begin searching for another. Similarly, a violation should cause you to drop an adviser you are thinking of hiring from your evaluation process.
  • Do not accept soft-dollar payments. Soft-dollar payments are received by some advisers from mutual fund families. Consider only those advisers who practice fee transparency. These advisers will produce a bill for you each quarter for the services they provide. Their only source of revenue is the fees they receive from their clients.
  • Are objective. Don't hire an investment adviser that is also an asset manager. For example, many employers use mutual fund companies as their investment adviser as well as asset manager. No surprise, these investment advisers will use the investment funds their mutual fund family offers in your plan. This is a conflict of interest that compromises the investment adviser’s objectivity and may also be a breach of your fiduciary duty to the plan.
  • Work for investment advisory firms. This may seem logical; however, there are a lot of plan sponsors that hire accounting firms or banks to provide investment advisory services to their retirement plans. Hire a professional who works for a firm whose core business is providing investment advice. There is a major difference in the quality of advice you will receive.
  • Are able to work with everyone. Many employers use investment advisers who are required to recommend proprietary products or who aren’t able to work with the entire universe of investment options or providers. Investment advisers who work for brokerage firms or mutual fund companies fall into these categories. Hire someone who has no conflicts of interest and will make the best recommendations to your investment committee for your participants.

Many employers review their provider relationships annually. Consider evaluating your investment adviser as the current year comes to a close.
Contributing Editor Robert C. Lawton is president of Lawton Retirement Plan Consultants, LLC a Registered Investment Advisory firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. Mr. Lawton may be contacted at or 414.828.4015.

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