Advisor Independence: 5 Steps to Select and Monitor Service Providers

This last blog in our series on advisor independence includes key action items for plan sponsors. To understand the context of these steps further, explore another blog here, or download our complete guide from our Resources page.

Action Items for Plan Sponsors

Plan sponsors are encouraged to revisit their selection and monitoring process for advisors and consultants considering the following:

  • Step 1: Develop a framework for selecting and monitoring investment advisor during changing times. Given the development of new solutions, products, and services that advisors and consultants are delivering in the marketplace, plan sponsors should update their checklist, request for information (RFI), or request for proposal (RFP) template to ensure it captures some of the conflicts that are present in today’s marketplace. For example, plan sponsors should consider reviewing the following, including but not limited to:
    • Review the ownership structure of the investment advisor. While private equity owning an advisory practice might not be wrong on its face, it may influence the decisions of the advisor and the solutions it recommends. Many private equity-backed firms are pushing advisor-managed accounts as a mechanism to drive additional revenue.
    • Review services provided (and offered). Going back to the basics and understanding the 408(b)(2) disclosure will be helpful to determine what services are provided by the advisor and is it commensurate with the fees.
    • Review fees and fee structures. Advisors, like recordkeepers, are now more frequently seeking to capture revenue from sources beyond the traditional scope of services. Understanding all of the ways an advisor is compensated remains critical – and is required under ERISA.
    • Understand pending litigation against the advisor (and its ownership). Litigation is on the rise. Remaining informed about any pending litigation against your advisor is critically important.
    • Review conflicts of interest. The DOL requires plan sponsors continually understand conflicts of interest and make determinations based on such conflicts.
  • Step 2: Gather information about the existing or proposed investment advisor.
    • Based on the framework, plan sponsors must initially, and on a periodic basis, inquire about the advisor or consultant to understand if the advisor or consultant remain the prudent selection for the plan. When selecting a new advisor or consultant, plan sponsors are encouraged to gather information for multiple advisors.
  • Step 3: Objectively evaluate the existing or proposed investment advisor.
    • When comparing the information gathered for an existing advisor (or multiple options for a new advisor), plan sponsors should objectively analyze similar information. For services such as managed accounts, plan sponsors may encounter some problems in that there is no consistent information to compare and there is a dearth of data available for such comparative purposes.  
  • Step 4: Make a decision and periodically revisit the selection.
    • Advisors should make a decision based on their objective review process that aligns with the needs of the plan and its participants as a whole. However, they should use caution to revisit periodically – keeping in mind that the answers to some of these questions may periodically change.  
  • Step 5: Document the review.
    • As with any prudent review process, if it isn’t documented, it is like no process occurred.

While ERISA creates broad deference for plan sponsors to make decisions, it is important for plan sponsors to identify areas of potential exposure and conflicts and utilize caution accordingly.

Distinguishing from Conflicted Models

You may be wondering if any consultants and advisors aren’t conflicted. If this is endemic in the retirement plan industry, how is Multnomah Group able to avoid these conflicts and remain independent – delivering value provided through practical advice and clear communication?

Advisors that feel the worst pressure of fee compression are those advisory practices that did not prepare for the future. Since our founding, Multnomah Group has focused on building a strong infrastructure committed to organic growth and incremental progress. By investing in technology, staff, compliance, and other important (and expensive) resources over the last 20 years, we are not pressured by fees.

Another reason many firms are forced to sell to private equity – the proverbial envelope-pushing managed accounts – is that there is a lack of succession planning. At its core, Multnomah Group is focused on the next generation and a sustainable future for its internal and stakeholders, making it not susceptible to the pressure to sell to private equity at the end of the road. For years, we have hired the next position in the firm before capacity was reached.

These values-based decisions are the fuel that drives us to be able to do what’s in the best interest of the plan and its participants, which is the foundational requirement of ERISA and its investment-related duties. To learn more about Multnomah Group’s conflict-fee structure and how that can help you mitigate risk as a plan sponsor while increasing returns for your participants, contact a Multnomah Group consultant.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.  

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