Common Mistakes Advisers Make That Should be Avoided

Experts outline several ways advisers can ensure they keep the loyalty of their clients.

Advisers can sometimes slip up on delivering the service they provide to plan sponsors and participants, which could lead to the loss of a client. Here, industry experts outline common mistakes advisers can avoid to remain in their clients’ good graces.

The first thing a retirement plan adviser that charges a sponsor more than $1,000 a year needs to do is disclose their fee, as mandated by the Department of Labor (DOL), says Ary Rosenbaum, managing partner at The Rosenbaum Law Firm P.C. If the adviser fails to do so, Rosenbaum says, the DOL could consider any transaction with the adviser to be a prohibited transaction and could charge the plan sponsor financial penalties.

Jay Jumper, chief executive officer of ProNvest, agrees, saying, “One of your best options to inspire confidence in the plan sponsor is to be upfront about your fees, making them easy to understand and competitive with the market.”

Sponsors also need to ensure that the fees their adviser is charging them are reasonable, Rosenbaum says. If, through requests for proposals (RFPs) or requests for information (RFIs), the sponsor discovers the fee is unreasonable, they might grow dissatisfied with their adviser, he says.

Rosenbaum goes on to say that there are many advisers who fail to meet with their sponsor clients on a regular basis, which, he maintains, should be twice a year at a minimum, in order to “review the plan, go over the investment lineup and conduct participant enrollment/education meetings.”

Ann-Marie Gorczyca, senior vice president, client services and operations at Vestwell, concurs that this is a common mistake advisers make. “Advisers should be continually engaging with both the plan and participants to increase participation and results,” Gorczyca says. “Where we see unhappy clients is when advisers are less present—or, perhaps, not present at all. Sponsors want regular feedback on employee engagement, fund lineups, plan design, costs and more. If sponsors feel like the plan and its participants are operating on an island, it’s very likely they’ll devalue the need for having an adviser at all.”

Jumper adds that advisers should ensure that they are talking to the key decisionmakers for their clients. “If the adviser is simply in touch with an HR [human resources] or office manager, they won’t have the necessary buy-in,” he says.

Likewise, Rosenbaum says, there are advisers who do not communicate with the plan participants. “ERISA [the Employee Retirement Income Security Act] requires a process that includes a prudent section of plan investments based on set criteria and providing enough information to plan participants so they can make informed investment choices,” Rosenbaum says.

Advisers also need to be on their game when it comes to recommending service providers, he says. “A plan sponsor often relies on their financial adviser for referrals because they assume that the providers should know a thing or two about which providers do a decent job of providing plan service to 401(k) sponsors,” he notes.

Should an adviser make a mistake, Rosenbaum says, they immediately need to own up to it and help the plan sponsor correct it, he says.

“Advisers make mistakes—some more than others,” he says. “The important part is that it’s not frequent and the adviser is willing to make amends for their error.”