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Top 5 Questions to Ask When Interviewing an Investment Advisor

August 22, 2018


Top 5 Questions For Investment Advisors

  1. Do you currently serve as an advisor for company retirement plans?
  2. How are you compensated?
  3. How do you select the investments you recommend?
  4. Do you have a team to support my employees’ questions and needs?
  5. How do you keep up to date on regulations and trends?

So, you’re ready to implement a retirement plan and start interviewing investment advisors so you and your employees can all start reaping the benefits of saving for a quality retirement. Not too mention all the other perks that come with having a company-sponsored retirement plan, like: reducing the amount you pay in taxes, attracting new employees while reducing employee turnover, and possibly engaging in some alternative investment strategies.

Nonetheless, you need start by choosing the right investment advisor. What you don’t want to do is just pick a name randomly thinking all investment advisors are the same or equal in abilities or service offerings. You want to make sure that the advisor you hire will understand the goals of your business, your personal retirement goals as well as offer investment advice to each of your employees. Though this may be a time-consuming process, we have created a list of the 5 most important questions to ask any investment advisor to make sure you hire the right person.

1. Do you currently serve as an advisor for company retirement plans?

It is important to know if the advisor you are looking for has experience and is currently working in the industry. The reason is because many advisors out there are actually individual wealth advisors and do not have experience advising on company-sponsored retirement plans.

Why this is important is because the responsibilities related to advising on a company retirement plan are vastly different from the fiduciary obligations an advisor has when advising on individual wealth accounts. The investment advisor you hire must be apprised of all current and new government regulations according to company-sponsored plans. If they are not, then it is you (the fiduciary of the plan) that will ultimately be responsible and the one penalized.

Some follow-up questions may include:

  • What kind of plans do you work with?
  • What percentage of your practice is focused on advising company retirement plans vs. individual wealth advising?
  • How many plans do you advise?
  • What professional groups are you associated with?
  • Have you obtained any credentials or certifications related to the retirement plan industry?
  • Do you participate in continuing education courses?

You will easily be able to ascertain the advisors background and experience with company-sponsored retirement planning from these questions, so you can either quickly move on to another candidate or continue your questioning.

2. How are you compensated?

You want to make sure all costs are disclosed upfront before you begin working with your investment advisor. Be sure to identify any and all direct and indirect compensation charged and/or received by the investment advisor, including fees that are deducted from plan investments and assessed against a portfolio's assets.

You should also find out if the investment advisor you are interviewing accepts any 12b-1, sub-TA or any other type of referral fee from any vendor. If they do, then their advisement on particular investment options may be biased towards those vendors (since they get a kickback) and not necessarily representative of the best investment lineup for your company retirement plan.

Also see 5 great tax breaks for businesses with a retirement plan

3. How do you select the investments you recommend?

Here we really are trying to understand their individual process and if it aligns with your goals. Be sure to ask the investment advisor you are interviewing why they think their selection process works, and how it will work for your company. Additional follow up questions could be:

  • What is your process for developing and recommending an Investment Policy Statement (IPS) for my organization? (An IPS is a written policy used as a guideline for investment decisions by the plan's fiduciaries)
  • What are some plan design features that you often recommend to your clients and why?

We recommend that you gain an understanding of what types of plan design features your advisor recommends to other clients. This way you will have a better idea of what they may offer you. For example, automatic enrollment is often recommended by investment advisors as a way to get your employees to start using the retirement plan and saving more consistently.

4. Do you have a team to support my employees’ retirement plan questions and needs?

You want to make sure that you have the support that you need. After all, you are not the professional investment advisor and shouldn’t be responsible for advising your employees on their retirement. That’s one of the reasons why you’re hiring an investment advisor in the first place. Be sure to ask the advisor to describe what kind of support they provide, including:

  • Support at the plan sponsor level
  • Support at the plan participant level
  • Enrollment support
  • Any other on-going education

5. How do you keep up to date on regulations and trends affecting company retirement plans?

The retirement plan industry is highly regulated, and governing entities such as the Department of Licensing (DOL) and the Internal Revenue Service (IRS) have requirements that frequently change. It is important your investment advisor has a process for keeping up to date on what they should and need to know about government regulations.

For more tips and information regarding retirement plans, contact us.

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