Many advisors mistakenly think that managing workplace retirement accounts requires becoming the “representative of record”—or the “plan advisor”—for the entire plan. Others resist citing a litany of perceived roadblocks—i.e., limited investment choices, ERISA rules, fiduciary obligations, operational complexities and more.
These widely held assumptions leave many advisors believing they cannot provide guidance and oversight on these significant assets despite their clients’ desire for help with them.
As a result, workplace retirement accounts—like 401(k), 403(b), or 457 accounts—typically sit outside a client’s broader financial plan until a break in service or retirement occurs. This means that a key component of a client’s financial picture is left unmanaged and potentially misaligned with their long-term goals and risk tolerance.
With increasing client demand for holistic planning coupled with new fintech and platform tools, advisors now have options to bridge the gap between traditional financial assets and workplace retirement accounts. The fact is, many retirement plans permit third-party management—by the last count, more than 100,000 plans in the U.S. covering 25 million workers allow this. Advisors choosing to effectively navigate plan rules can compliantly manage clients’ workplace retirement accounts and integrate them into a holistic financial plan without waiting for a job transition or retirement.
Since not all approaches are created equal, here’s a look at some of the most popular ways of doing so.
The Casual Observer
Some advisors keep 401(k) accounts at arms-length, offering occasional and casual recommendations based on the account’s limited available core investment menu, which typically has, on average, just 15 investment options.
While this back-of-the-envelope approach is simple, it leaves the responsibility of investment execution and account monitoring to the client … who, ironically, hired a professional advisor to be responsible for the planning, execution and management of their investments. Even though the advisor doesn’t typically collect a fee directly for this type of casual guidance, which lacks the rigor of formal financial planning, he or she is potentially exposed to compliance risks with this approach.
The Ghost Advisor
Some advisors use their clients’ credentials through fintech software to access and manage accounts directly. Is this approach convenient? Sometimes. But compliant and above board? This method is under increasing scrutiny by state regulators and custodians concerned about the inherent security of accounts accessed by these methods. The plan record keeper cannot determine who is logging into the account.
This approach also limits the advisor to only using the investment options offered within the plan. What’s more, billing must occur outside of the account. This means the advisor needs to debit another account to collect fees for this management or bill the client separately and be paid by check.
With either of these approaches, it may be difficult or cumbersome to accurately model portfolio outcomes and allocations at scale for multiple clients, since regular manual updates are required to keep the financial plans current.
The Recognized Advisor
Using an advisory platform that enables third-party management of retirement accounts directly through the plan record keeper is an effective and compliant way for advisors to help clients with these accounts. By adhering to plan rules and custodial guidelines, advisors can manage workplace retirement accounts similarly to other assets under management.
This approach allows for more holistic financial planning, risk-aligned portfolios, seamless billing, and automated trading. Unlike other approaches, which must be done on a client-by-client basis, the use of a third-party platform means the advisor can manage workplace retirement accounts for their clients more efficiently at scale.
A Word of Caution
Regardless of which path an advisor chooses in managing clients’ 401(k)s, there’s one point that can’t be overlooked: many retirement plans permit third-party management, but not all do. It is critical that advisors focus on the fine print of these plans before diving in on behalf of clients. To remain compliant and uphold ethical standards, advisors must respect the specific rules of plans that do not allow external access or management.
Unlocking Growth Potential
Integrating workplace retirement accounts into the financial planning process ensures that no assets are left behind, enhancing both client outcomes and the advisor’s practice.
By understanding the compliance landscape and adopting scalable strategies, advisors can deliver significant value to clients through 401(k) management while driving practice growth. Outsourcing 401(k) management to specialized firms to help navigate the nuances of individual plans enables advisors to focus on delivering exceptional service. And for clients, having their 401(k) account professionally managed offers peace of mind.