Three Things You Need to Know When Hiring a 401(k) Adviser

401-k-advisor-image“Remember upon the conduct of each depends the fate of all.” – Alexander the Great

As a Human Resources Professional, C-level executive, or team leader, you depend on those around you to give their best, as you give your best to them. At the start of this new year, maybe it is time to ask yourself if you are demanding that same level of quality from the professionals you hire outside your company walls. That highest level of professionalism is especially important when hiring an adviser to manage your company’s 401(k) plan. With increased scrutiny on fiduciary responsibility and the roles that each professional plays in the management of the plan, here are three things to consider when hiring or evaluating your 401(k) adviser.

  1. Is your adviser focused on 401(k)s?

“Jack of all trades, master of none” comes to mind when thinking of a financial adviser who does not focus on one specific area of expertise. While there is nothing to say that an adviser cannot be good at multiple financial disciplines, when it comes to managing 401(k) plans it is imperative that your adviser know enough to stay on top of changing regulations and best practices. Aside from the fiduciary focus, there is also renewed attention on target dates and how they are selected and monitored. Your adviser should understand these rules and be able to document how your plan is addressing them. Additionally, review your adviser’s qualifications and designations looking for industry designations that specifically address their fiduciary knowledge.

  1. Is your adviser on a team or a sole practitioner?

There is not a right or wrong answer to this question, rather something to consider as a best fit for your plan. I work on a team and cannot imagine trying to go it alone and properly manage all of the responsibilities to the plan, the plan committee, and the participants. On my team, I focus on the analytical, detailed, “left-brain” tasks and my partner focuses on educating the plan participants and keeping the message relatable. Additionally, we have found that when working with committees there are times when my style and personality work well with some committee members and times where his is a better fit.

  1. How is your adviser compensated?

This is especially important to know ahead of the April 1, 2017, start date of the new fiduciary rules. It will be more difficult for your adviser to be compensated if he or she is receiving commissions from the investments in the plan. A commission is a fixed amount paid out to an adviser from an investment that is included in the cost of the investment and does not have to be paid separately or approved by the plan sponsor. The other way an adviser is compensated is to charge a fee to the plan. This fee can be in the form of an asset based charge, usually represented as a percentage, or as a flat fee. Typically, the fee is fully disclosed, is not paid by the investments, and can either be paid by the plan sponsor or passed on to participant accounts.

If you are unsure of the answers to any of the questions above, please reach out to me at jamie@grinkmeyerleonard.com or 205.970.9088 and I’ll be happy to get you some answers!

A Quick Guide to Understanding Fiduciary Definitions

fiduciary-duty-imageAs it stands today, the Department of  Labor’s (DOL) Fiduciary Conflicts of Interest Rule is set to take effect on April 10, 2017. As with most new rules or regulations, there are a lot rumors and speculation surrounding how the rule will be applied and who will be impacted. If you are a plan sponsor of a qualified retirement plan, like a 401(k), then now is the time to educate yourself as to who is working with the plan and how his or her role will be impacted by this rule. Here are the definitions of some commonly used terms that are associated with the rule.

Glossary of Terms: DOL Fiduciary Rule

Best Interest Contract Exemption
This provision of the DOL rule requires an advisor to enter into a written agreement with a client before advising him or her and receiving commission-based compensation. The agreement should confirm the advisor will act in the client’s best interest and disclose any conflicts of interest that may exist.

Commissions/Trails
This type of compensation pays a percentage of a product sold on each transaction. Trails are a form of recurring commission that pays a stated percentage annually for a sale made in the past.

Department of Labor (DOL)
The United States DOL oversees services and advice provided to retirement accounts, and it is one of the agencies responsible for enforcing ERISA. The DOL has proposed this revised fiduciary rule with the goal of expanding protection for clients’ retirement assets.

Employee Retirement Income Security Act of 1974 (ERISA)
ERISA regulates and protects retirement assets by establishing rules that plan fiduciaries must follow.

Fees
In fee-based accounts, advisors charge a management fee based on the amount of assets. The opposite form of compensation would be transaction based, such as commissions.

In qualified retirement plans, advisors charge a fee for services provided. The fee may be based on a percentage of plan assets or a flat fee.

Fiduciary
ERISA defines “fiduciary” as anyone who exercises discretionary authority or control over a retirement plan’s assets or provides investment advice to a plan. Fiduciaries are held to a higher standard of accountability than are brokers, and they are required by law to act in the best interest of their clients. The DOL rule seeks to expand the definition of fiduciary to anyone providing advice on retirement plans.

Suitability
A suitability standard requires advisors to reasonably believe their recommendation will meet a client’s needs, given the client’s financial situation and risk tolerance. This standard is not as strict as a fiduciary standard.

If you are feeling a bit overwhelmed or confused by what is involved, you are not alone and we are here to help. Please contact me at jamie@grinkmeyerleonard.com or 205.970.9088 to learn more.

Employee Benefit Plan Audits – Are You Getting a Quality Audit?

bsmsA great article from Jaime Sweeney, Senior Manager, Barfield, Murphy, Shank & Smith, LLC.

 

 

 

The Department of Labor and the Employee Benefits Security Administration recently completed an assessment of the quality of audit work performed by independent public accountants and the overall findings were disappointing.  In May 2015, the DOL released a report titled “Assessing the Quality of Employee Benefit Plan Audits” that found 30% of the audits (nearly 4 out of 10) contained major deficiencies in regards to GAAS requirements.  Those deficiencies could lead to rejection of a Form 5500 filing.

The report makes recommendations, including DOL outreach and enforcement related to audit standards.  As part of this outreach, in November of 2015, the DOL distributed letters and information to plan administrators of “funded” ERISA employee benefit plans providing tips for selecting and working with a qualified CPA firm auditor who has the expertise.  Plan administrators are held responsible as fiduciaries of the plan, and can be held personally liable if they are not making reasonable choices with regard to their plan.

The letter explains that a quality audit can help protect plan assets and make sure that the plan is compliant with applicable law.  The letter specifically emphasizes that plan administrators should be careful when they select and retain an auditor.

While many accounting firms are choosing not to continue offering employee benefit plan audits, we at Barfield, Murphy, Shank & Smith, LLC assure you that we are distinctly qualified for this work and will continue to offer this service.

According to the DOL, you should consider the following factors when selecting a CPA firm:

  • The number of employee benefit plans the CPA audits each year, including the types of plans
    • Having worked extensively with retirement plans for over two decades, BMSS is known for having one of the premier auditing practices in Alabama. BMSS audited in excess of 30 plans in 2015, including defined contribution and defined benefit plans.  Our staff has a great deal of experience understanding the nuances of these audits.
  • The extent of specific annual training the CPA received in auditing plans
    • Employee benefit plan audits have unique audit and reporting requirements and are different from other financial audits. At BMSS, all of our employee benefit plan professionals receive annual Continuing Professional Education specific to Employee Benefit Audits.
    • Barfield, Murphy, Shank & Smith, LLC is a member of the American Institute of Certified Public Accounts EBPAQC (Employee Benefit Plan Audit Quality Center), a group created to improve quality of benefit plan audits with news alerts, training, webinars, audit quality center and other resources.
  • The status of the CPA’s license with the applicable state board of accountancy
    • Our CPAs are actively licensed by the Alabama State Board of Accountancy.
  • Whether the CPA has been the subject of any prior DOL findings or referrals, or has been referred to a state board of accountancy or the American Institute of CPAs (AICPA) for investigation
    • We are proud to say that BMSS has not been subject to any DOL findings or referrals. We have not been referred to a state board nor the AICPA for investigation.
  • Whether or not your CPA’s employee benefit plan audit work has recently been reviewed by another CPA (this is called a “Peer Review”) and, if so, whether such review resulted in negative findings
    • BMSS participates in the AICPA Peer Review Program and has passed every peer review. Our last peer review was dated November 6, 2014

If you have any questions or concerns regarding your employee benefit plan audit or if you would simply like more information about receiving a quality audit, please contact one of the EBP Audit professionals Barfield, Murphy, Shank & Smith LLC at (205) 982-5500.

Written by Jaime Sweeney, Senior Manager, Barfield, Murphy, Shank & Smith, LLC