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Financial Advisor for 401k/Profit Sharing??

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  • Financial Advisor for 401k/Profit Sharing??

    So some background, wife and I are both physicans that recently started W2 positions. Mine has a standard retirement plan, but hers is a private group that does things differently. When she inquired about her 401k, she got this:

    "You can start the process of setting up your Profit Sharing plan with the help of your financial advisor. You are eligible to participate in this plan immediately on your hire date. Your plan account should be titled “Group Name, SC Employees’ Profit-Sharing and Savings Plan & Trust FBO Wife's Name”, a trust account with trustees "Group presidents name" and Federal Tax ID#xxxxx. When you set up your profit sharing account, please authorize your broker to send a duplicate copy of your monthly account statement to our accountant: "Accountants name and address"."

    So it sounds like she can set it up at any financial institution, but does this require a financial advisor? I I've set up solo 401ks before for a prior 1099 positions, but setting up trustees and mailing monthly statements.. Is this something I can set up /automate with a place like Vanguard?

    The group has a great set up financially, but they seem to really cut corners admin to maximize profits. They don't even have direct deposit!

    Thanks,



  • #2
    Also, she already has set up her paycheck deductions so presumably they're just collecting her deductions until we give them an account to send them to.

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    • #3
      I think that is just a presumptuous statement made about the financial advisor, but I would just ask HR that question (along with if you can open it at a separate custodian like a Vanguard) since each plan has their own rules. They may make you open your account at one place, but you then have the option of if you want an advisor to manage it for you ongoing).
      Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC | Podcast Host - The Physician's Guide to Financial Wellness

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      • #4
        There's actually no HR, just a secretary for the group that seemingly does everything. This was the follow up response:
        You can choose wherever you'd like to open your account.
        Your broker will provide you with forms for setting up the account which
        will ultimately need to be signed by the trustees (group presidents).
        Once you have the account opened, just let me know your account # and where
        to send your contribution checks.

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        • #5
          No, this does not require a financial advisor and I would suggest it is a bad idea to involve one. It will almost certainly involve expensive options with loads, 12b-1 kickbacks and or AUM fees. If you want to use an advisor, use a fee-only advisor for your overall portfolios.

          You can open these at brokerages. They are just a little harder to find. E-Trade has their Investment Only Retirement Plan, Fidelity has their Investment-Only Retirement Account (AKA Fidelity Non-Prototype Account), Schwab has their Schwab Company Retirement Account (CRA), TD Ameritrade has similar accounts and Vanguard offers a single pooled account.

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          • #6
            Originally posted by Andrew Musbach View Post
            I think that is just a presumptuous statement made about the financial advisor, but I would just ask HR that question (along with if you can open it at a separate custodian like a Vanguard) since each plan has their own rules. They may make you open your account at one place, but you then have the option of if you want an advisor to manage it for you ongoing).
            There is no "HR" to ask questions in this group. Our practice formerly had an old school retirement plan that was similar, but the accounts were automatically opened at Schwab, and the financial advisor was provided. It was a struggle to opt out. Your wife's group allows much more freedom.

            Given what you have posted, I would walk into a Schwab or Fidelity (whichever is closer to where you live or where you already have accounts) and open an account as instructed. (I would not deal with Vanguard for this.) Your wife will likely be able to manage her own account or hire and advisor, her choice. There is the change that the practice may require a fiduciary financial advisor, so the group will not be liable for any missteps that your wife might make in her investment choices. She can simply ask the head of the group if an FA is required.

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            • #7
              Any fiduciary requirement would be at the plan level and not at the individual level.

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              • #8
                As spiritrider noted you will have to use a trust-type retirement account. I have used Fidelity and TDA for this purpose in the past and both required copies of the plan documents before opening the accounts so I would obtain a copy prior to applying for an account to avoid frustrating delays.

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                • #9
                  Originally posted by ttc56 View Post
                  So some background, wife and I are both physicans that recently started W2 positions. Mine has a standard retirement plan, but hers is a private group that does things differently. When she inquired about her 401k, she got this:

                  "You can start the process of setting up your Profit Sharing plan with the help of your financial advisor. You are eligible to participate in this plan immediately on your hire date. Your plan account should be titled “Group Name, SC Employees’ Profit-Sharing and Savings Plan & Trust FBO Wife's Name”, a trust account with trustees "Group presidents name" and Federal Tax ID#xxxxx. When you set up your profit sharing account, please authorize your broker to send a duplicate copy of your monthly account statement to our accountant: "Accountants name and address"."

                  So it sounds like she can set it up at any financial institution, but does this require a financial advisor? I I've set up solo 401ks before for a prior 1099 positions, but setting up trustees and mailing monthly statements.. Is this something I can set up /automate with a place like Vanguard?

                  The group has a great set up financially, but they seem to really cut corners admin to maximize profits. They don't even have direct deposit!

                  Thanks,

                  As others have mentioned, this is basically an invitation to open a self-directed brokerage account in the name of the plan. The reason they want FA involved is because it requires quite a bit of work, and usually the practice opens these for you (and fills out all of the necessary paperwork), but in this case they may be asking you to do it on your own, which can be a fiduciary breach on their part as mistakes can be made in the process that can endanger the bankruptcy/creditor protection of the account (if it is not titled in the name of the plan correctly, for example).

                  I've written about the issues with these types of accounts/plans here:

                  https://www.whitecoatinvestor.com/ho...tirement-plan/

                  Vanguard, Schwab, Fidelity and others have trust accounts that would work, and while she can hire an adviser to manage this, this would be a fiduciary under Adviser's Act of 1940, not under ERISA, so if anything, this increases the liability for the practice because they have to oversee this adviser's actions and make sure the fees are reasonable (as required by ERISA).

                  The biggest issue is that these SDBAs are not ERISA compliant, making this a huge liability for the plan sponsor. It is not possible to make them so, unless they are offered from within the plan. Adding other advisers into the mix is another huge can of worms (and of course, letting them all pull fees out of these accounts is another potential fiduciary breach). Plan sponsor is snowballing their liability with this type of arrangement because any mistakes caused by any participants in administering these accounts will simply lead to issues for all of the partners/owners. The issue is much bigger if there are NHCEs and/or non-partner employees involved, but even if partner-only, this arrangement is not a good idea.

                  So while they may be thinking they are saving money by going with this approach, once the practice grows, it becomes impossible to manage/administer dozens and dozens of separate SDBAs, and the TPA might also be struggling to collect the data from all of these accounts, not to mention making sure that there are no prohibited transactions and non-ERISA investments in these types of accounts. So at some point they might realize that they need to make a switch to a fund menu with internally offered SDBAs when this arrangement grows out of their ability to manage it.

                  Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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