Revamping our practice’s 401K profit sharing - Limited service financial advisor

[Teancum76]

Hi White Coat Investors

Question for all the smart ones out there.  I am currently in the process of revamping our practice’s 401k profit sharing plan.

We are in Texas. We have 48 employees, 9 providers, 3 of the 9 providers are partners in the practice.  We are looking at switching investment platforms from a high fee/expense ratio platform to a lower cost platform like Employee Fiduciary or Vanguard (unbundled).  We are comfortable selecting our own mutual fund line up and we will choose a select number of Vanguard funds that mimic the Thrift Savings Plan funds.  We will keep our local TPA as their fees are reasonable and they do a good job with new comparability cross testing and have kept us out of trouble there. We have not had a financial advisor for either 3 (38) or 3 (21) fiduciary services to try to save costs.

Some of the employees have been asking for some financial advisor services to help them pick their fund mix. We were leaning toward NOT hiring a financial advisor. I know this comment may generate some controversy, but we have done our due diligence and we understand the we do not have to have a 3(21) or 3(38) financial advisor. So I am not looking to hear from anyone out there about why we are putting ourselves at liability risk by not having one on this post.

IF we hire an advisor we basically want to hire the adviser to only assist the employees in selecting the funds from the available choices and possibly to provide educational seminars to the employees.

I’m having a hard time finding an advisor that will do just that and only that. Anyone know of any good options for that type of service with reasonable low costs?

Thanks in advance!

[jacoavlu]

Teancum76 wrote:

We have not had a financial advisor for either 3 (38) or 3 (21) fiduciary services to try to save costs.

Click to expand...

I assume you're one of the 3 partners?

Not that I think your plan is unreasonable. But ironically if you'd had a true fiduciary in the past they'd have saved you rather than cost you. By getting you away from your high fee/expense platform long ago.

Here's a question: How much do you think is a reasonable amount that you would want to spend on this per year?

[Teancum76]

I just recently became a partner. I’ve been doing a self-directed 401k with fidelity putting everything into their 4-in-1 index fund. Now that I’m a partner, i have an incentive to revamp the plan to make it a win-win for everyone. I think reasonable fee would ideally be a fixed fee instead of a percentage of assets under management. I would think for our size of practice, we would like to see fees in the range of $1000 to $2000 per year. For an asset based fee, we wouldn’t do anything over one basis point but would prefer a fixed fee. I don’t think it would be more than 4-6 hours of work per year for what we are asking for. I am considering assuming this financial advisor role myself for the employees and I would probably give as good or better advice than some financial advisors. The reason to even consider an outside financial advisor in this case, I think, is to prevent any chance of a perceived conflict of interest and to maintain boundaries with the employees.

[Teancum76]

I replied to your questions but I’m not sure I linked it to your post. I’m a newbie to posting stuff on forums/blogs

[jacoavlu]

Advising the employees yourself in this capacity is a terrible idea. You’re better off doing nothing.

I really doubt you’re going to get a quality FA in the door for $1-2k per year. Not worth their time. I’m not sure what you think you’re going to get for that amount. Certainly not any one on one time for employees.

[White.Beard.Doc]

We were in a very similar situation. We like our TPA, who is cost effective. We got bids from several different platform and record keeping providers. We took our time and ended up with a company we never expected to use. We also chose not to have fiduciary services.

Our TPA remains the same, very reasonable cost paid by the practice. If I remember correctly, around 5k/year for a growing plan with over 10MM in assets.

Funds are all vanguard, fees run less than 10bps on average for plan participants.

Record keeper, surprise, surprise, is Voya. We offer no Voya funds, only Vanguard funds. Voya does record keeping for around 10k per year. The practice decided to pay the record keeper and the TPA, so all of the employees on average pay less than 10 bps for fund fees only.

How we dealt with the issue of non-sophisticated investors was to make the age appropriate target date fund the automatic default option. If desired, you can opt out of the target date retirement fund and mix and match on your own, and you can participate in the Voya webinars to guide your investment choices if you wish.

We switched about a year ago and we feel we have an outstanding safe harbor/401k/profit sharing plan.

[Teancum76]

Yes jacoavlu, that’s the kind of response to the question I was anticipating. I think White.beard.doc’s comment gives some good food for thought.

[spiritrider]

The reason you are finding it hard to find an "advisor" for such a low cost plan, is because they will not be making any money from commissions and/or AUM fees.

What you might want to be looking for is a fee-ONLY Certified Financial Planner. I worked at couple of small companies that provided a fully subsidized CFP during on-bording and change of plan provider. I might have had something to do with that.

The cost wasn't insignificant, but It was one of the more popular benefits provided. I was told by more than one employee that they always felt terrified and paralyzed whenever they had to select 401k investment options

[Teancum76]

Thanks for your comments. I think that is a direction we will look into. And you are right, I’m sure the employees would see that as a huge employee benefit. There is probably a hidden benefit there with employee loyalty, job satisfaction, retention. Hard to calculate the value added with that when looking at the cost of that type of service

[Tim]

“We have 48 employees”
Let’s say 1hr/year/employee, just a thumbnail rough time commitment. How much do you think is reasonable? The point is the commitment is variable for the FA or CFP but the reimbursement is fixed.
That’s $20/hr. The problem with fiduciary is the investment must be appropriate for the individual. Not worth it for the fiduciary.
A 1 or 2 hr presentation might be had for $1-$2k.

[Teancum76]

Thanks for all the responses thus far to my question.  Attached is an excel spreadsheet I put together that compares some of the different investment platforms we are looking at. The plan is to show this to the other partners in the practice and to the practice administration to help them see the difference in fees between the different platforms.

[jacoavlu]

Are you doing profit sharing? I assume so because you mentioned new comparability testing.

I don’t see anything in your spreadsheet about plan design. Perhaps you’ve already gone through that and you’re confident that the plan design you have now with new comparability testing is ideal.

But if you’re overhauling the plan and haven’t had various plan designs laid out and compared as to your cost of employer contributions, now would be the time to do so. Particularly if you’re considering adding a cash balance plan.

[Teancum76]

Yes, we have looked at plan designs with and without cash balance plan and how they impact employer contributions and with different scenarios. There are pros and cons to each plan design as you know. I didn’t want to post those details as to remain somewhat anonymous and keep my partners financials private but we have that. I appreciate you taking a look and please let me know if you have any other words of wisdom or caution

[spiritrider]

I guess I'm not understanding why you are paying for duplication of services. You have an independent TPA providing administrative services (including cross-testing), and document services. You would also be paying Vanguard/Ascensus and Employee Fiduciary for TPA services (I guess less cross-testing). So are you just using their trustee, custodial and record keeping services. Whose plan document are you going to use and who is providing plan administrative and compliance.

I hope Kon stops by, because this makes no sense to me. If you have a TPA providing at least what you have indicated. They should be able to contract for open platform trustee, custodial, record keeping services without the duplication of effort and cost of using another TPA.

[Physicians Capital Management LLC]

I will private message you.  You are on the right track!