Basic Guidelines for Searching for a Benefit Plan Investment Advisor

Fabricia Edwards, CPA

An investment advisor serves a very important function in a retirement plan.  In most cases, investment advisors are given the discretion to administer and manage plan assets, which makes them fiduciaries of the plan.  As a result, advisors should act in the best interest of plan participants, with the sole purpose of protecting retirement savings.  As a plan trustee, the process of selecting an advisor must be carefully conducted and documented. What should you consider when searching for an investment advisor?

  • Interview different investment advisors. During these meetings collect informational materials, and conduct research about the investment company and its clients.
  • Stay away from investment managers that have physical possession of their own assets. Remember Bernie Madoff?  Possession of assets allowed Madoff to carry on his infamous Ponzi scheme.  A good investment manager should have plan assets held by a separate custodian.
  • Hire an experienced advisor.  It takes more than just years in the business or a high dollar portfolio.  Evaluate the advisor’s experience with retirement plans. They must understand the industry, ERISA regulations, and the size and nature of your plan.
  • Are fees reasonable? Avoid hiring an advisor with the lowest fees as in most cases it ultimately means the lowest quality of service.  Compare fees with existing and potential managers, and understand performance-related fees.
  • For participant-directed plans, inquire about investment education and enrollment meetings. This will limit the plan sponsor’s liability as it transfers the responsibility to the participant.


Once the investment manager is hired:

  • Monitor performance regularly.  Even though you may have delegated your investment management responsibility to the advisor, you still have the obligation to oversee their performance and ensure the advisor is performing his/her duties prudently.  Review account statements for unusual activity and understand the nature of the investment vehicle the plan is investing in and the advisor’s compliance with the plan’s investment policy.  Benchmark performance against market indices.
  • Document everything. As previously mentioned, it is important to document the decisions made concerning investment advisors and why they were made.

Selecting an investment manager is not a simple process, but following these criteria will assist you in the process of selecting the right investment manager for your plan.

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