Financial planners who advise on 401(k) plans need to get out in front of sponsors and plan participants to explain new disclosure rules, says this retirement plan expert.
Charlie Epstein, CLU, ChFC, AIF, founder of the 401k Coach Program, says financial advisors need to reduce the backlash from the new rules. August 30 is the deadline under new federal regulations for retirement plan participants to be provided with information on mutual funds, related fees, performance and other details that should increase transparency.
"As a rule of thumb, overcommunicating is better than the alternative," Epstein says. "Employees will appreciate you, and better yet, many will be more willing than ever to meet with you to discuss their personal financial planning. In the end, you will get paid more for your actions, not less."
Epstein offers these five tips to financial advisors:
Get out in front of the noise. Get out to your 401(k) employers and make them aware of the pending Department of Labor 405(a) participant fee-disclosure rules. Let employers know what it means and how you think employees may react. Let them know how their 401(k) record keeper plans to communicate these fees and in what format.
Help employers review other investment providers. If the 401(k) plans have not been put out to bid in the last three years, they need to be now. Plan fees and expenses have been dropping 25% to 50%, and you may be able to save the employer that much or more in expenses.
Add low-cost index and ETF funds. If your current plans do not offer lower cost index funds in each asset category, add them immediately. In large fee disclosure litigation cases, the courts have ruled in favor of plan sponsor fiduciaries, especially when a 401(k) plan offered both higher-cost active and lower-cost passive fund options to all employees. Translation: It's tough to argue when a plan offers a wide range of investment choices.
Talk to employees. Tell the plan sponsor employer it is critical that you meet with employees, both in groups and one-on-one to make them aware of the fee disclosure and its impact on their retirement savings.
Update your service agreement and fee disclosure statements. You need to communicate the services you provide and the hard- and soft-dollar fees you will receive for providing those services, disclose whether you will be a fiduciary to the plan and disclose any conflicts of interest.