Components of a Successful Plan

Like complex machines, 401(k) plans have many different moving parts that must be coordinated to run smoothly and meet the needs of the organization sponsoring the plan. These moving components – people, firms and systems – represent the delivery structure of the various service areas such as administration, investment management and employee communications. Delivery of these services in a format consistent with your organization’s expectations is critical. If the different components don’t fit well together or match your needs, the results may include incorrect depositing of funds, inaccurate and untimely participant information or IRS reporting, and/or employees who don't understand, appreciate or participate in the plan.

In general, all 401(k) plans have the same basic objective – to serve as a retirement savings plan for employees. Yet there are many different 401(k) plan models that suit a wide range of specific company needs. The 401(k) advisor’s role is to help you set reasonable expectations, select the most appropriate plan, then manage all the components on an ongoing basis to help ensure a successful plan.

Why You Should Choose an Independent 401(k) Advisor

Raymond James financial advisors are objective and fully independent in making their recommendations to you and your employees. Because we do not offer a proprietary “in-house” 401(k) plan, we have no incentive to sell any specific product, but work with virtually all the different product and service providers in the 401(k) market.

We understand many factors are involved in the selection of 401(k) providers ... each employer has specific needs and objectives that are important in this decision. Our team assists companies in evaluating alternatives and then, after providers are selected, coordinate the different components of the 401(k) process on an ongoing basis. Our goal is to build and foster long-term relationships with you as well as with your company and its employees.

The Role of the 401(k) Advisor

Maintaining an appropriate retirement plan for your company often seems like a daunting task – especially when you consider everything else that goes into running a successful business. At our office, it’s one of our specialties. In general, the role of a 401(k) advisor can be segmented into:

Clearly defining the parameters of the specific client relationship and establishing reasonable expectations for both the client and the advisor. Developing an overall retirement plan strategy with specific goals is critical in ensuring success.

Providing consultation regarding the evaluation and selection of service providers. A qualified 401(k) advisor can diagnose the particular aspects of the service delivery that are critical to your situation and recommend the most appropriate alternatives. Since Raymond James advisors are not tied to a particular provider, we’re free to recommend what is best for your company and employees.

Plan design consulting. Plan design provisions can make a big difference in whether your plan meets your needs. These provisions address matching contribution formulas, cross-tested profit sharing allocations, qualification and eligibility issues, and merger and acquisition situations. As a Raymond James 401(k) advisor, we are backed by a team of consultants with years of experience in qualified and non-qualified retirement plan design.

Designing an investment policy statement (IPS). As a plan sponsor, you can minimize your fiduciary liability by implementing an IPS. An IPS outlines a detailed, prudent plan of action for the trust’s investment managers and advisors to follow. It describes the plan’s investment philosophy, risk tolerance and long-term goals to help guide all decisions – and changes – made regarding the plan. Because the IPS is in writing, it helps prevent misunderstandings between you and the plan’s advisors. Most 401(k) plan sponsors don’t have an IPS, but because we consider this an integral part of helping you develop a successful plan, we will assist you in developing your own written statements.

Managing the implementation and transition to new provider(s). This is perhaps the most challenging function of all, and is usually where most problems begin. Most “fired” providers are not overly anxious to cooperate with new providers, so it takes a dedicated effort to ensure a smooth transition. Having one individual responsible for coordination makes the process more user-friendly for you.

Serving as primary contact for all aspects of plan servicing. No longer will you or your employees need to wonder what to do when problems or questions arise. We’ll act as the single source responsible for coordinating all the moving parts and will troubleshoot as needed. Moreover, we will monitor the service providers to ensure that they continue to meet your retirement plan needs, replacing them if necessary.

Providing ongoing plan reviews. This includes: discussing overall plan service, operation and results, such as participation levels, deferral percentages, loans, non-discrimination testing, enrollment and communication strategies, and any other items of relative importance; offering a performance analysis at least annually of investments utilized by the plan versus benchmarks and/or peer groups; monitoring funds selected by plan sponsor for style drift and correlation with fund investment objectives stated in the IPS; and providing regulatory updates – information on legislative, Department of Labor and IRS matters of relevance to retirement plans.

Managing employee communication and investment education. We believe that coordinating enrollment meetings and providing ongoing investment education for participants regarding plan options is a valuable part of our service. We provide an educational financial planning newsletter and other resources.

In addition, we can integrate qualified plan goals into a personal customized financial and estate plan as necessary. Finally, we will educate plan participants about plan distribution alternatives, provide retirement cash flow analysis, and, when necessary, consult with retirees regarding investment asset allocation.

Frequently Asked Questions

How Is A 401(k) Advisor Compensated?
An advisor can either be paid from fees charged directly to the plan participants or plan sponsor, or from a portion of the investment management or servicing fee built into the pricing structure of a packaged product. In some cases, a combination of the methods may be used. You should expect your advisor to explain in detail how he or she gets paid and what functions will be performed to earn that compensation.

The real consulting firms charge only fees. How can you be an objective consultant if you get paid by the provider?
The fact is many consulting firms do get paid by providers, and high-end consultants may be worth every penny in complex or problem situations. However, they may also be prone to overstate the complexity to warrant their expertise and high fees. Raymond James 401(k) advisors have access to the same high-level consulting expertise, but you will only pay for it if necessary. We also work directly with consutltants from 401(k) providers and TPAs.

What about fees and expenses? Aren’t the fees higher if we use an advisor?
The fee structures in 401(k) arrangements can be very complex; however, like many other products and services, you often get what you pay for. There are certain providers that compete based on price and market their services directly to plan sponsors as avoiding the unnecessary cost of an advisor. Such an arrangement typically works only if the plan sponsor dedicates someone on the company payroll to certain 401(k) functions…or the plan accepts less service. Another aspect of cost is investment management. Again, certain providers compete on cost, but cheapest is rarely the best choice. Our 401(k) team will provide you with all the information you will need to evaluate the costs of different providers.

Is online advice for 401(k) participants going to make personal contact with an advisor obsolete?
Just the opposite. Expert, knowledgeable 401(k) advisors embrace technology as a tool to help fulfill the role of advisor more effectively. We’ll be glad to discuss the different ways we use technology with both the plan sponsor and the plan participants.

Isn’t it true that you can only use “load” funds, or funds your company allows?
Raymond James has selling agreements with nearly 9,000 load and no-load funds, including proprietary funds of other investment brokerage firms. Furthermore, our proprietary forward-looking mutual fund research process brings a completely objective perspective on how selected funds may perform in the future. One of the common misconceptions in the selection of a 401(k) service provider is that a “no-load” provider is less costly than a provider that builds the advisor’s fee into the package. The reality is that most of the no-load providers actually have classes of fund shares designed specifically for advisors, with compensation to the advisor built into the fund expense structure.