Bob Scherzer of World Investment Advisors joins Jeffrey Snyder to explain how employers should hire a retirement plan advisor. Learn why advisors matter, the difference between ERISA 3(21) and 3(38) fiduciary roles, how to evaluate firms (team, credentials, ADV, RFPs), typical fee structures, and what to expect during the advisor transition process. Practical guidance for plan sponsors on selecting the right advisor and benchmarking services and costs.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now is Bob Scherzer of World Investment Advisors.
Bob, always great to see you. Thanks for joining me back on the program this morning. Great to see you again, Jeff.
And our theme for today is how to hire a retirement plan advisor. My first question, Bob, is the why. Why should plan sponsors, why should employers hire a retirement plan advisor for their 401k plan, their 403b plan, their pension plan?
Robert Scherzer, AIF®®, World Investment Advisors
Yeah, I mean, I like the fact that you called it a retirement plan advisor. I mean, a lot of times people are saying I’m hiring an investment advisor, right? And that’s certainly a part of it.
But let’s face it, a retirement plan is very complex. And certainly investments are a piece of it. But it’s not just investments, right?
It’s you want to hire somebody to talk to you about plan design. How do you get the most out of your plan? You want to hire somebody to find you the right record keeper, right?
There’s a lot of different record keepers out there. And at this point, they could all do the math. They could all send you a statement.
They could all do that. What is the right fit for your organization? There’s always the fees.
What are the fees associated? Do you have an advisor that can help you negotiate with those fees? And then, of course, there’s the fiduciary overlay, right?
It’s a highly regulated benefit. So you want to have an advisor that’s going to serve as your quarterback, your band leader, the tip of the sphere, to kind of work with you as the employer, plan sponsor, to make sure you’re getting the very best for your participants in maximizing the effectiveness of your retirement plan.
Jeffrey Snyder, Broadcast Retirement Network
Well, certainly, Bob, there’s a level of expertise. And you’re right. Not everyone has it.
And there’s the rigors that you have to go through in terms of designations and just pure experience from the record-keeping perspective. It’s like its own ecosystem. Let me ask you a follow-up question.
There’s a terminology in our industry, ERISA 321 or ERISA 338. If I’m a plan sponsor, I’m a fiduciary. How do I figure out which one is the right fiduciary requirement for me, for my plan, not for me?
Robert Scherzer, AIF®, World Investment Advisors
Yeah, really good question. I mean, and a lot of people consider 321, they call it the co-fiduciary, right? And the 338 is the investment manager fiduciary.
So I think of it as under a co-fiduciary, you’ve got the advisor recommending a given fund and the employers considering that. And then ultimately, they’re going to, if they agree with that recommendation, they’re going to execute that recommendation with the record-keeper. So think of it as the advisor and the plan sponsor, they’re in the canoe together.
Under a 338 fiduciary, it’s really the same process where the advisor is telling the employer, you know, going over the various different investments. But ultimately, at that point, you’re telling the employer, put your paddle there. And then really the difference then becomes the plan sponsor is no longer opining whether you want a fidelity fund or a Vanguard fund.
It’s just, is the recommendation reasonable? You know, so if the advisor says fund A should replace fund B because of the manager left, the expenses are too high, the performance is better, okay, reasonable. They don’t have to really opine between fund A and fund B.
They’re delegating that under 338. If that advisor, however, says, hey, I’m going to replace your money market fund with Bitcoin, you know, the bell should go off, you know, maybe that’s it. So what’s the right fit?
Do I want to have, you know, and really oftentimes it comes to, is it a hedge fund? They really want to have a lot more interaction or a manufacturing company. So one’s not right or wrong.
What is the correct fit for the plan sponsor? Do they want to delegate more? Do they want the highest form of fiduciary protection, which is 338?
Or do they want to be more involved in the investment process, which is a 321?
Jeffrey Snyder, Broadcast Retirement Network
So there’s a lot of choices in the marketplace, different types of firms. There are, you know, aggregators, firms that buy up other firms. There are independents.
How do you figure out the differences? I mean, what’s important when you’re differentiating between provider A? Say you’re going to do a search and you’ve got three or four or five different options.
How do you differentiate between the three to four or the five?
Robert Scherzer, AIF®, World Investment Advisors
Yeah, I mean, I really do think you have to come out with a questionnaire. You might want to hire a firm to kind of come out with an RFP to kind of select that advisor to go through that due diligence process. But ultimately, you know, whether you’re using an aggregator firm or a wire house firm or whatever you might want to use, it really comes down to the team as well, right?
So you certainly want to have the infrastructure. You want to make sure that they have the CFAs, all the bench strength to make sure they’re doing the right job, et cetera. But ultimately, what is the team that’s going to be servicing you?
Do they have the right experience? You know, we have that term, Jeff, right? You don’t want to involve yourself with the two-plan Tony, right?
The person that’s got two retirement plans and hasn’t really done it before because it’s a highly evolved marketplace. So even though, you know, maybe they’ve got that big backing of a large institution, but they haven’t really done it before, you might be better off with that boutique that’s got lots and lots of experience. Of course, the best of all worlds is having an organization with a lot of resources with a team that’s really been, you know, has spent a lot of time in the retirement space.
Jeffrey Snyder, Broadcast Retirement Network
So I don’t recall meeting a two-plan Tony, but I’m sure there are plenty out there. But you did mention the CFA charter holder and some other designations. How do you figure out the credentialing?
Because I know you have a credential behind your name, the AIF®, that’s a pretty prestigious credential in our industry. But how do you do the research? I mean, where do you look to see if there are conflicts of interest if people are properly credentialed?
Robert Scherzer, AIF®, World Investment Advisors
Yeah, it’s a good question, Jeff. I mean, really what you have to do is you really have to do the work, right? You’ll have to do is when you go and are you working with a broker, you know, that has a certain fiduciary standard?
Or are you working with a registered investment advisory firm, right? And then what you can then do is you want to look at what they call the ADV. That is the kind of legislative background at both the firm level.
And then the representative will also have their own ADV. That will have various different disclosures on that, on the individual, also will show their various different designations. So you want to take a look at that, what designations that they have, and make sure that they’re going to be able to properly service you and give you the intellectual capabilities, not just them, but also the team behind them.
Jeffrey Snyder, Broadcast Retirement Network
And I have to ask you about fees, Bob, you know, no one works for nothing. And there’s costs, whether it’s implicit or explicit. How do you pay for 321 and 338 or not?
How do you, how does the fiduciary, how does the plan pay for these expenses? Isn’t it a fixed cost? Is it an asset-based fee or all the above or some of the above?
Robert Scherzer, AIF®, World Investment Advisors
Yeah, I mean, it’s really a combination. What I find is there’s no hard and fast rule but typically the quote unquote smaller plan will oftentimes have a fee based on assets, right? You know, so if a plan, you know, what I generally find is the market below $10 million usually will have a fee that’s an asset-based, you know, whether it’s 25 basis points or something like that.
Once you get to, let’s say above 20 million, it’s usually more of a fixed fee between 10 to 20 million. Now, again, these are very loose numbers. What I would say is if you are in an asset-based fee, it should scale down, right?
So if it’s, you know, 25 basis points up to X and maybe it goes to 20 basis points, 10 basis points. Also another common fee arrangement might be a flat dollar amount with X percentage on top of it. So, hey, an advisor might charge you $30,000 a year plus a 3% cost of living increase.
This has really come to forefront with obviously the growth of the marketplace, right? Plans that were 20 million are now 30 million. Very hard for an employer.
Is it reasonable that just because the plan’s assets have grown 50%, should an advisor’s fees have grown 50%? Are they doing 50% more work? There’s a lot of businesses out there that would love to raise their fees 50% and they just don’t.
So that’s why it’s really important that you benchmark your advisor’s fees just like you benchmark your record keeper’s fees and your other covered service providers.
Jeffrey Snyder, Broadcast Retirement Network
So as a follow-up to that, you brought this up, I think earlier in the conversation, my favorite topic, request for proposal, RFP. Like you do for record keeping, like you do for other parts of the retirement plan ecosystem for each plan, is that the right process to undertake an RFP to search for an advisor?
Robert Scherzer, AIF®, World Investment Advisors
You do. I mean, there’s just like a record keeper, there’s requests for information, which is kind of a more loose, where maybe you might have 15 questions, 10 questions, there’s a request for a proposal that maybe you do that every three to five years. The RFI might be every two to three years.
And then there’s also these industry databanks, right? We subscribe to a couple of them where you can kind of look at a plan and compare it to another hundreds of plans of their size and scope just to get a flavor. But again, what’s important is you can’t just benchmark the fee, you need to benchmark the services.
You know, an easy one to benchmark is, hey, are you a 321 or a 338, right? There’s more liability, there’s more exposure. Does the advisor have a financial wellness program, right?
Are they working with your participants? Are they helping your participants? Are they just serving the committee?
Are you meeting semi-annually? Are you meeting quarterly? Are you helping, is the advisor helping you develop an investment policy statement?
Do they have fiduciary governance? Are they getting involved with these various different matters? So again, the devil’s there in the details, right?
You know, is a fee reasonable? Well, it also depends on the services that the advisor is providing.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, really important. And not to, I’m not trying to correct you, but I mean, additionally, privacy data, that seems to be something that’s really popped up. It’s not just about the fees, it’s about all these other things.
I kind of liken it to Bob, an onion. You’re kind of peeling back to onion to learn more. And there’s a lot more qualitative factors than just comparing things side by side.
Bob, last question for you. Let’s just say a hire, not me personally, but someone hires a retirement plan advisor. Is there a transition period like you would have for a record keeper, going from one record keeper from A to B?
Is there a transition period to kind of get services up and running over time?
Robert Scherzer, AIF®, World Investment Advisors
There is, but of course, is the plan on fire or not, right? You know, sometimes you come in and the plan’s a real mess and you just have to kind of dive right in there and start fixing things right away. But under normal circumstance, yes.
I mean, typically you get engaged and there might be, okay, let’s sit down and what are we trying to accomplish, right? You know, and a lot of that just becomes data, right? Let’s do a study.
Let’s take a look at where are we with the fund lineup? Where are we with the plan design? Sitting down with the plan sponsor and figuring out what are your goals?
What do we want to tackle first? What are the biggest problem areas? A lot of the plans that we took over these last couple of years, you know, we had secure 2.0. There were the mandatory provisions. Well, what about the optional provisions? Let’s take a look at that. Let’s have a discussion.
Let’s start from there. That’s where we can kind of map out usually a 60 to 90 day process, 180 day, one year. Where do we want to be in the first three, six and 12 months?
Jeffrey Snyder, Broadcast Retirement Network
Yep. Obviously, you know, Columbus didn’t just set sail. He, or Columbus didn’t just sail.
He set sail. He sailed West. Bob, we’re going to have to leave it there.
Great to see you as always. Thanks for helping lay it all out. And look, we look forward to having you back again very soon.
Robert Scherzer, AIF®, World Investment Advisors
Hey, Jeff, thanks for having me.