How do you Choose an Advisor for a Nonprofit 403 B Plan (or a 401 K Plan)?
So why establish a Retirement Plan in the first place? 54% of California private sector employees do not currently own a retirement savings account or participate in a pension. We have a looming crisis.
In 2016, California passed legislation requiring employers with more than 5 employees to participate in CalSavers by June 2022. Therefore, more employers, including nonprofits are exploring or starting retirement plans – such as 403 B programs.
Before we go into details of how to select an advisor, let’s talk about how the various providers work together to support your retirement plan. So how do all these partners work together to support your 403 b plan?
You, as the employer or Plan Sponsor, are responsible for oversight of the plan. Ideally, you should have a Retirement Plan Investment Committee comprised of the Head of Finance, Head of HR and another member of the Executive Team.
You hire both the Investment Advisor to develop the Retirement Plan Investment Policy statement, select the investment options and educate your employees AND you hire the Third-Party Administrator to design and administer your plan. The Advisor will partner closely with the Third Party Administrator whether it’s a startup plan or a converting plan to ensure employees are trained and know how to access the plan.
The safekeeping of the assets inside the plan are usually held with a Custodian. It’s important to know each of the providers and their fees so you have full transparency into the costs of your plan. You will mostly work with the TPA and the investment advisor on your plan.
When selecting an investment advisor for your plan, what are the important considerations? We believe there are 5 important areas of consideration. Each one comes with a set of questions to ask providers before finalizing your selection. Of course, there are also very important considerations when selecting your Third-party Administrator and Custodian as well. Since our expertise here at Fairlight is investments, we are focusing on that in this video.
- Service: I have this listed as #1 since service is paramount when you’re a busy leader at a nonprofit or a for-profit organization.
Will the investment advisor work closely with you and with your Third-Party Administrator to on-board new participants to your plan? Do they provide helpful tools and information during your decision-making process? Do they return your calls or inquiries in a timely manner? As an HR or Finance professional, you should not have to chase down either your administrator or your plan advisor. - Education:
a) Will your advisor provide semi-annual education sessions for your employees that include basic investment education and the benefits of retirement savings?
b) Does your advisor provide education materials for the plan participants to review or work through on their own?
c) Will the advisor be accessible and contactable by participants in the plan?
d) Does the advisor provide 1 to 1 education sessions for employees & is that included in their fee? - Fiduciary:
a) Can the advisor provide 3(38) Fiduciary Services? In other words, can the advisor provide advice on all aspects of the investment selection for you including line-up of funds, removal or exchange of funds into the plan and a qualified default investment alternative (also known as QDIA) for those participants who choose not to select an investment option(s)? - b) As a fiduciary, the investment manager is duty bound to select the best investment options for you, the client, including the lowest cost.
- Fees:
a) How does your investment advisors’ fees compare to others? If you are a start-up retirement plan, can the advisor offer a flat fee rate that is reasonable? $2,000 to $2,500 per year?
b) Do they bill quarterly in arrears? Can they select funds with low-cost investment options? Ideally you want to have funds that cost no more than an average of .15% across the entire plan.
c) Do they select funds with low-cost investment options? Ideally you want to have funds that cost no more than an average of .15% across the entire plan. - Experience:
a) Does the advisor have experience working with not-for-profit organizations?
b) Are they mission-aligned when it comes to what your organization cares about?
c) Can they recommend funds in your plan that have a social impact?
Talk to the financial experts at Fairlight Advisors to learn more about managing your nonprofit’s investments. Schedule a free consultation today!
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