Hiring a Competent Advisor for Your 401(k)

The benefits of offering a 401(k) plan to your employees – namely, higher retention rates and more job applicants – are well known. Many financial advisors, however, have largely refrained from entering the defined contribution space.

A recent article from Wealth Management implores more advisors to specialize in this area.

But how do you know if you’ve found a financial advisor you can trust with your company’s retirement plan? Some financial advisors, including those at Correct Capital, have decades of experience in the retirement planning space, which gives them the knowledge and connections to ensure you keep costs lower and benefits high.

In this episode of Capital Conversations, CERTIFIED FINANCIAL PLANNER™ professional Colin Day speaks to retirement plan specialist John Biedenstein to discuss the complexities of offering a 401(k) plan and how to find an advisor you can work with.

For recent investment news and our take on the current market, retirement planning, and investment, listen to our podcast Capital Conversations or view our recent blog posts. Below is a transcript from this episode, "Hiring a Competent Advisor for Your 401(k)."

---

---

Colin Day: Hi again, everybody. This is Colin Day, CERTIFIED FINANCIAL PLANNER™ professional. Along with me today is John Biedenstein. How we doing, John?

John Biedenstein: We're doing great.

Colin Day: Yeah?

John Biedenstein: It's a beautiful day here in St. Louis.

Colin Day: Yeah, it's a beautiful day for a Capital Conversation. Wouldn't you say?

John Biedenstein: Exactly.

Colin Day: I want to have John on because, if you didn't know anything about John besides the fact that he's got enough brothers for several families, he also leads our 401(k) group. So we have two different parts of our business where we help individuals and families with their individual and investment and financial planning needs. Then the other side of our business is concentrated on employer retirement plans, including 401(k)s.

This article that I had found from a couple weeks back, I thought was pretty interesting and would be something in your wheelhouse. And you're ready and raring to go, right?

John Biedenstein: Exactly.

Colin Day: So this particular article from Wealth Management is titled, 401k Industry Sends Urgent Call to Wealth Advisors. So what this article is all about, in case you haven't read it in your inbox yet, is the urgent call for financial advisors to do more in what's known as the defined contribution space. So defined contribution is just a nice way of saying, “Hey, you are going to be offered a retirement plan through work, and you have to contribute towards it.” So this isn't the traditional benefit plan, where we're talking about a pension, so a defined benefit plan. A defined contribution plan is a 401(k). Is that fair to say, John?

John Biedenstein: That's correct.

Colin Day: Yeah. So this particular article is talking about the need for financial advisors to expand who they're working with to include retirement plans. And this is something–I mean, John, let's be honest here, you have a couple decades on me in terms of your experience within the 401k plan space – what do you think is important? For a financial advisor to commit to working with employers on their group retirement plan.

John Biedenstein: Well, working in the retirement plan space, one thing it really requires is somebody to dedicate some time to really understanding the industry. It's just like if you have an ailment and you go into a specialist, retirement plans, managing retirement plans, assisting companies in managing your own retirement plan, is really a specialty. A lot of financial advisors do an excellent job managing personal wealth, but retirement plans end up to be something a little bit down a different path into a separate lane and people really need to get their arms around that and understand that.

So that's where it can be different. And the other thing that makes it so different. There's a lot of different moving parts. You might have to work with your payroll provider. You have to hire a separate firm called a record keeper. So there's other folks that you want to coordinate with and, in a lot of cases,it's integral to get the right one. And there's a lot of choices there too.

Colin Day: And it only increases the number of vendors that you're working with, right? Because you might be an employer, maybe you're the founder, maybe you're the HR person or doing finance and you're realizing, “Okay, I think one of the benefits we would like to offer employees is some kind of group retirement plan.”

And maybe the 401(k) is what you're leaning towards because the marketing in the United States says, “Hey, if you're saving for retirement at work, you're going to have a 401(k).” So if we go down that route, now you're introducing not just the fact that, “Hey, I want to have a 401(k),” but you've got multiple parties, right?

You need to have, likely, a record keeper that's going to hold on to all those assets and trusts. You're going to maybe have an administrator that's going to help you. You're going to have your payroll group that needs to be involved because the money needs to exit people's checks and then go to the financial institution. And then you might also include an advisor that's helping maybe quarterback and consult with you, not just on the plan itself, but then also to work with all of your employees to make sure that, “Hey, they understand the benefit. Hey, they understand that maybe there are some education needs here too.”

It's just a very interesting problem, something that I didn't realize. When they said that, “Hey, there's 13,000 defined contribution specialists in the U. S.,” and to think about the number of plans that there are and there will be can be insurmountable.

John Biedenstein: Correct. And the reason they're saying there will be a greater number of them is that – a number of the states have already passed it – there are now state mandates. Meaning, if you have X number of employees, you have to have some type of retirement plan. Our neighboring state, the state of Illinois, has had it in place for a number of years. Essentially, if you haven't had a plan in place, they require that you start contributing to the state mandated plan, which is basically a Roth IRA on steroids. And the steroids [are] the additional fees that go with it, too.

It's important for companies looking for a retirement plan, basically we help those employers to review the state mandated plan, for some that's a good fit for you, but you have other options and let's make sure we're choosing not just what the state requires you to do, but what's the best plan and best solution for your company and your employees.

Colin Day: Yeah. And what we found is, many employers who are struggling to hold on to staff or to attract prospective employees are turning to their benefits to be a differentiator. So in 2023, where we are at the end of the year, many employers are starting to look through their benefits package for 2024. They've already gone through open enrollment and maybe are realizing, “Hmm, maybe there's some improvements that we can make, provided we have a pretty good year in 2024.” And one of those things is offering some kind of competitive retirement plan. You know, and offer something that many employers are going to offer, but if you don't see 401(k) as one of the benefits on the bullet points when you're on Monster.com or LinkedIn or whatever, that's going to be a red flag to a lot of prospective employees.

And the other thing is that many employers are interested in are the tax credits now that are eligible to apply for through Secure Act 2. 0, which was passed late last year. So now, not only are employers trying to attract the talent, but now they're trying to afford the ability to run the plan, because unfortunately 401(k) plans aren't free. You could pass a lot of expenses down to your employees, but there's still a lot of stuff that you need to control administratively and then, foot the bill. I mean, if you had to break it down, some of the costs, if you were thinking about, if this is an employer that's across the table from us like this, what would you be talking to them about from a cost perspective that they should be anticipating?

John Biedenstein: Well, first off, in a lot of cases, the employer needs to decide, “Do you want to kick in a contribution or not?” That’s, in most cases, the largest cost. So that employer decides, okay, “We want to make a contribution amount,” and maybe it's a flat dollar amount, maybe it's a percentage of pay, whatever that amount is.

There's also a cost to hire a record keeper. There's also a cost to hire a financial advisor. But the biggest cost is going to be the employer contributing some amount. Some cases the employer can't have the ability to contribute because they might have, [because] profits might vary each year, so they can't commit to doing that every year. You do what's called a discretionary contribution then. So you have the ability to kick in money when you can afford it, but you don't have the overall commitment. The reason why these plans are getting more and more focus from the government doing the state mandates is, we're seeing this aging population and people are living longer and people maybe aren't saving enough for retirement, so they end up working longer. Whether you're in a good job and you're still providing that value for the employer, but in some cases you might have people that are simply working to contribute to their retirement accounts to save more because they haven't saved enough. So part of the mandate is to for employers to really recognize that retirement savings is important, and it's important for your employees and for the welfare of your business.

Colin Day: If you're listening to or you're watching this, I think what John is exhibiting is some of the experience that certain financial advisors have within this space. Again, coming back to the article, this particular article is saying like “Hey, we need more financial advisors to do this.” And yeah, there are lots of different financial advisors that might have one or two plans. Maybe they've got a buddy from school that has a need for a solo 401(k) with her and her spouse. Or maybe it's a small company down the road or across the hallway.

But, where you can make a really big impact for employees and to offer the greatest kind of benefit is to work with groups that have the experience of negotiating these kinds of things. I mean, we work with, what, 12 different record keepers right now? We've got almost 40 different retirement plans. We work with multiple industries. We had somebody here a couple weeks ago that you got brought into a meeting because, “Hey, there was a sudden need, we got a clock and we want to put in a retirement plan before the end of the year.” You know, because there was going to be a great tax benefit to the owners, but then also an added benefit to those employees.

We got an email this morning, from somebody on the West Coast saying, “Hey, we're trying to put together some kind of benefits package for our employees and we understand that a 401(k) plan can be valuable. How can you help?” I mean, that's what we put directly on our website. “Hey, we are 401(k) advisors along with individual wealth managers.”

John Biedenstein: Yeah.I've worked in the industry for a very long time, as you indicated, Collin, you're absolutely right. You could walk around in a historical branch of a financial advisor's office. (It used to be when they were in the office, a lot of working from home now.) The reality is you could go by and probably of 50 advisors in the office, everybody has one or two plans.

Most firms, including ourselves, we've set up a specialty area. Most firms – broker/dealer firms – now require that if you're doing a retirement plan, you have to do it through a specialist so that a financial advisor might have to bring somebody in to help them.

Setting up a retirement plan is great. There's a fiduciary responsibility for a lot of cases with the advisor providing investment advice to the plan sponsor, selecting investment choices, all of those types of things. There's a fiduciary responsibility behind that. And we have a way of doing it where we can deliver that, and as Colin indicated, to 13, 14 different record keeping partners. We have the experience of doing that. Not all advisors that don't have the experience have the ability to say, “Let's plug this in and make this work and you, the plan sponsor, have all this fiduciary protection that you should have.” So that's where the specialist – and we're talking about a specialist with years of experience – can be a much more advantageous versus a specialist that might have gone through one or two training classes, maybe they have a designation behind their name, but the the big question for a business owner to ask is “What's your experience? How many plans do you have?” We might be in the construction industry. You know, “Do you work with other contractors? What's your experience been with that?” That's where you can kind of test the water and see what's the right thing for me?

Colin Day: Yeah. And it's the team, right? [The team] that you can build there. Because we have relationships not only with our record keeping partners. And if you're not familiar with that lingo, that's the financial institutions American Funds, Fidelity, Vanguard, Voya, Empower, whoever it might be. But then it's also the relationships with the payroll providers, because if you work with – whether it's a larger institution or a smaller one – we need to understand “What are their capabilities?” Because again, you got to take that money, you got to put it into a retirement account, so how are we going to do that? Well, we need the payroll to work with it. Does payroll communicate at all? Are you going to be cutting a check? It can just raise the heckles on somebody to say, “Oh, it's enough where I don't want to do anything.” And that's obviously what we don't want for any employer to feel, is that this is too much work that I can't devote the time to it.

And that means again, a lot of other things are going to fall by the wayside. It's going to be harder to retain employees. It's going to be harder to attract employees. You're going to run into state mandates eventually where you're going to be forced into something that maybe you don't actually want because you ran out of time.

So, this is, again, this is all in this article, andI think it was really interesting. But I think, if you're out there and you have a 401(k), and you feel like everything is on solid footing, that's wonderful. I think it's great. If you have a financial advisor or not, that's up to you as to whether or not that's important. That you have that as a member of your team.

But ultimately, I think from a consultative perspective, having a partner that can assist on all levels. So, working with your record keeper, your payroll, your administrative group, whomever it might be. And then having someone like myself, I do participant education for all of our retirement plans. That's my job. John handles all the plan admin stuff, I don't have to deal with any of that. But having a team behind you that's supporting you in that endeavor I think is really important. And just because the industry says, “Hey, we need more people in this space,” doesn't mean that the person that does come to your door says, “Oh, we can put a retirement plan together.” They may or may not be the best partner for you. Is that fair?

John Biedenstein: That's absolutely correct. Probably seven, eight years ago, I was meeting with an individual who happened to be a heart surgeon and he was establishing a retirement plan. And I went through the process with him and this guy tells me, “God, this is complicated.” And I looked at him and I said, “You operate on human beings, okay?”

Colin Day: Yeah, yeah.

John Biedenstein: But this is very, very complex. You do not want the retirement plan to be a burden on your organization. Establish it so that it's fluid, it operates efficiently within your business and that you bring the right parties in so you're providing it. But you lessen some of your risk and fiduciary responsibility by designating things that people handle for you. That's where we can help and that's where an experienced advisor really adds value.

Colin Day: Yeah, I agree. I agree. John, any other last comments before we let everybody go on with their day?

John Biedenstein: These industry stories, these industry articles, it's why we do the Capital Conversations. Because we know all of you aren't reading these things. But all of you might be confronted with these type of discussions or questions at some point in time. So we hope this is of value to you and please give us a call if we can be of any help.

Colin Day: All right, John, thanks for joining us.

John Biedenstein: Thank you. All right. And we'll see you in the next Capital Conversation. Thank you.

Legal Disclaimer: The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Correct Capital Wealth Management is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Correct Capital Wealth Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Correct Capital Wealth Management unless a client service agreement is in place.

Capital Conversations by Correct Capital Wealth Management

With the changing dynamics of the workforce and increasing state mandates, it's more important than ever for business owners to understand the nuances of retirement planning. As Colin and John highlighted, the right retirement plan can be a significant differentiator in attracting and retaining top talent, especially in today's competitive job market. With Correct Capital's expertise in both individual wealth management and employer retirement plans, we can provide you with tailored solutions that align with your business goals and employee needs. Call Correct Capital at 877-930-4015 or contact us online to speak with a retirement plan specialist today.