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An Easy Guide to Due Diligence
Picking a retirement plan advisor can feel a bit overwhelming, but it's important for securing the financial future for all of your employees (including yourself)! Think of it as choosing a guide for an important journey—you want someone experienced, trustworthy, and aligned with your goals. With so many advisors out there, it’s essential to do your homework and find someone who truly understands your needs and goals.
This process, known as due diligence, involves carefully evaluating an advisor's credentials, experience, and approach to ensure they can guide you effectively. Here's a simple and straightforward guide to help you conduct due diligence when selecting a retirement plan advisor.
Your Duties as a Retirement Plan Sponsor
You, as the retirement plan sponsor, have your own duties and responsibilities. These include items such as:
- Being responsible for ensuring that your plan is compliant.
- Acting solely in the best interests of your employees.
- Knowing what your agreement does and does not cover.
- Communicating with your plan providers.
- Keeping up with ongoing plan reviews, monitoring, and updates
- Learning and keeping up with the rules.
What Does it Mean to Conduct Due Diligence?
Conducting due diligence involves thoroughly researching and evaluating current or potential service providers and their products and services when making decisions to hire or retain them. The main goal is gathering relevant information, assessing the risks and benefits, and making informed decisions.
This process involves carefully examining various factors: the financial stability of the organization, the experience and track record of the management team, regulatory compliance, fiduciary status, conflicts of interest, and potential outcomes. Retirement plan sponsors are encouraged to diligently complete the necessary due diligence before and throughout the engagement of any provider, especially an advisor.
The Importance of Conducting Due Diligence on Your Retirement Plan Advisors
Conducting due diligence on your retirement plan advisors is more important than you may realize. Although many individuals skip this process, understanding the value of completing this process can help put you at ease when it comes to securing your financial future.
This process aims to ensure that the advisor is qualified, trustworthy, and aligned with your financial goals. Verifying credentials and understanding exactly who you are working with is essential in protecting your investments and ensuring that they prioritize your best interests over their own. In essence, conducting due diligence and knowing that your financial well-being is in competent hands provides true peace of mind. Here’s a simple guide to help you when evaluating your current advisor or hiring your next advisor:
1. Ask them 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 advisor regularly has their practice and procedures reviewed by a third party who is well-versed in matters involving ERISA.
2. Document, document, document
Documentation of all actions is key to ensuring that you and your advisor remain compliant. All aspects of the relationship, including fiduciary and financial commitments, should be documented. It's of significant importance that an advisor 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 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 advisor. 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
Advisor fees should be well-defined, easy to understand, and transparent; they should also be deemed reasonable for the services provided.
Your Financial Future Deserves Due Diligence
Selecting the right retirement plan advisor is an important decision that requires thoughtful consideration and thorough review. Working with a retirement plan advisor ensures that you receive personalized guidance tailored to your unique needs and goals. By conducting due diligence, you not only protect yourself but confidently provide a benefit for your employees to build a stable future. Knowing that your retirement plan is in the capable hands of a professional advisor empowers your employees to make the most of their retirement years.
Is your retirement plan advisor conducting their due diligence? Find out with our Due Diligence Assessment! Download it here. 
references: https://www.irs.gov/pub/irs-tege/ps_responsibilities.pdf
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