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How to Conduct Due Diligence on Retirement Plan Advisers

As our nation’s corporate retirement plans gain increasing attention from regulators, it is important for plan sponsors to document the due diligence they perform to monitor the health of their plans. While this due diligence typically takes the form of fee benchmarking and various types of plan reporting, an effective way to evaluate those consultants providing advisory services to retirement plans has proved elusive.

What we've discovered is that most plan sponsors know how to benchmark or evaluate recordkeepers, but it's proven increasingly difficult for sponsors to complete the task as it applies to their plan's investment adviser. Yet, as a corporate retirement plan sponsor, you have the responsibility to ensure appropriate due diligence is performed on all aspects of retirement plans, including the advisers you've empowered to make decisions on your company's behalf. Take the necessary steps to ensure that you're doing your part:

1. Ask your adviser to provide the documentation of due diligence on their own group

To ensure that proper risk management practices are followed, you must ensure that your adviser regularly has their practice and procedures reviewed by a professional risk underwriter who is well-versed in matters involving ERISA.

2. Document, document, document

Documentation of all actions is key to ensuring that you and your adviser remain compliant. All aspects of the relationship, including critical records, should be documented. It's of significant importance that an adviser understands their responsibility in documenting that a prudent fiduciary process has been followed. 

3. Clarify what services you are/are not receiving

As with any partnership, and especially one of this sensitive nature, confirm services that your business has opted to receive, and then ensure that those particular services are completed in a satisfactory manner that will thrive under scrutiny

4. Eliminate conflicts of interest

This could include anything perceived to influence the judgment of the adviser. Keep in mind that, unlike other governing bodies that regulate the operation of retirement plans, simply disclosing potential conflicts of interest does not steer you in the right direction. Any potential conflicts—whether disclosed or not—should be ;eliminated.

5. Clearly define fees and transparency

Adviser fees should be well-defined, easy to understand, and transparent; they should also be deemed reasonable for the services provided.

Listen to our Webinar:
This webinar will walk you through a simple questionnaire plan sponsors can use to document their evaluation of a current or prospective adviser. It willcover the answers sponsors should look for and the logic behind the direction of the questions included as part of the tool. The goal is for plan sponsors to walk away with an actionable solution they can implement quickly.

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Retirement & Succession Plans

Brad Ferguson

Brad is a Vice President of SWBC Investment Advisory Services and also serves as a voting member of SWBC’s Investment Committee. He has more than ten years of experience in providing fiduciary services to plan sponsors in the retirement plan industry and acts as the head of SWBC’s institutional practice, providing fiduciary services to retirement plan providers at an enterprise level.

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