For Fathers Day this year, my daughters surprised me with a fishing trip. To improve our chance of success, we hired a captain for the outing. But, its not enough to know the captain is licensed you need to make sure he or she knows the waters and has experience specific to the type of fishing you want to do.
Hiring a financial professional is very much the same process: Plan sponsors need to hire the right one for the job.
So, are the right financial professionals helping non-profits?Heres what caught my eye in the 2015 Plan Sponsor Council of America 403(b) Survey:
- Only 46.7% of respondents say they employ a financial professional, despite approximately 80% indicating they are subject to ERISA. Given the expertise that financial professionals can bring to the table to help plan sponsors fulfill their ERISA obligations, this one surprises me.
- Only 25.8% of plans with less than 50 participants employ an independent financial professional. Given the tight resources of smaller plan sponsors and less ability for their personnel to specialize in ERISA knowledge smaller plans would seem to be in greater need of financial professionals.
- Only 73.6% of financial professionals provide investment services. You might assume that financial professionals are only for investments. But plan design, plan administration, provider selection and participant education are all valuable services provided by financial professionals. This emphasizes my point about selecting the right financial professional for the job.
- Sponsors of 403(b) plans clearly need guidance in the investment area. Funds available for participant contributions to be invested are up to 29 from 26 last year well above what the industry considers optimal. More than one-fifth (20.3%) of plans are still using money market funds as the default investment option. And almost half of plans (46.5%) either dont have an investment policy statement or are unsure if they have one. Financial professionals can help determine an appropriate investment lineup, select a diversified investment for the plans default investment option and get an investment policy statement in place.
While financial professionals are making headway into helping non-profits, the question becomes whether they are always the right financial professionals. Its well documented that too much choice causes analysis paralysis. Plan sponsors need help.
Also see: "A look at how much 403(b) plans have changed."
It would be foolish of me to hire a fishing captain based on his significant experience with tuna when I want to fish for striped bass. Similarly, plan sponsors should be differentiating the expertise of financial professionals, and financial professionals need to help with that differentiation. As the survey shows, there is plenty of opportunity for them to get engaged.
What do you think: Are financial professionals being adequately engaged to help with 403(b) plans? If so, are they the right financial professionals to provide appropriate guidance?
Friedman is the tax-exempt national practice leader with the Principal Financial Group®, an investment management and retirement leader. A noted expert on 403(b) plan design, he has been consulting with tax-exempt organizations for more than 20 years and has been in the retirement plan business since 1986. A version of this blog originally ran on The Principal blog. Follow Aaron on Twitter @1AaronFriedman1.
Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, 1 (800) 547-7754, Member SIPC and/or independent broker dealers. Securities sold by a Princor Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group (The Principal), Des Moines, IA 50392.
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