A retirement plan consultant is an advisor aimed to help you to get the most out of your 401(k). But do they really have your best interests at heart? Navigating your way through your options for your 401(k) can seem confusing, but luckily, we’re here to help.

Retirement plan consultants are typically hired by corporate clients who are responsible for choosing and managing a fund line-up for the employees of that company. They are there to educate you on different 401(k) options and to mitigate risk in your portfolio, providing the necessary support to maximize your returns.

Plan consultants normally provide model portfolios to make it easier for employees to create a diversified investment strategy, with advice and recommendations for individual retirement savings plans to suit all employees.

Some of the top providers of consultants are Retirement Plan Consultants, United Retirement Plan Consultants, and IMA Wealth Management Retirement Plan Consulting.

Should I Go Through My Employer’s Retirement Plan Consultant?

If you are going through your employer’s 401(k) plan you may well not have a choice whether to use a retirement plan consultant or not. So is it better to contribute to your company’s retirement plan, or to strike out on your own via an IRA?

If your Company offers a 401(k) match, then it’s usually in your best interest to contribute into your Company’s 401(k) plan, up to the full match amount. “The company match is literally free money,” writes Ramit Sethi in his book, “I Will Teach You To Be Rich.” In 2015, Vanguard reported that 94% of its 401(k) provided employer contributions, up from 91% in 2013 so the majority of companies provide this option.

Above the match amount, or if you max out your 401(k) (max contributions are $18,500 for 2018), you might consider supplementing your retirement plan with a personal investment account to augment your long-term or retirement savings. For example, an account with a provider like iBillionaire can give you a range of fund options that wouldn’t be available in a 401(k) plan, giving you exposure to new markets and industries. Retirement plans tend to be quite restrictive in withdrawing funds and making investment choices, so a personal investment account may be a good option if you’re looking for something more flexible, too.

Let’s look at some of the benefits and costs of using a 401(k) planning consultant.

How Retirement Plan Consultants Might Benefit You

As part of your employer’s retirement planning, your company may well provide you with the option to be part of the company 401(k) plan. This involves choosing the amount of yearly contributions based on a percentage of your salary, and to pick from a selection of funds and portfolio options as designed by your employer’s retirement plan consultant.

Contributions to a company’s 401(k) plan often come with an employer ‘match’ so that any amount that you contribute to your 401(k) is matched by your employer up to a certain percentage, typically between 4-8%. So if you contribute 5% of your salary per year to your 401(k), your company also contributes 5%. Importantly, the Company’s match is out of their pocket, not yours. If your employer offers this option it might be wise to take advantage of the additional employer contribution since it comes at no extra cost to you.

Through a company’s 401(k) plan, retirement consultants can provide many benefits to employees, such as:

  • regular, comprehensive plan reviews;
  • targeted employee communications and products; and,
  • a carefully selected choice of funds that have been vetted by a professional to have a strong track record of success.

Using a retirement plan consultant or indeed, any kind of personal financial advisor, is well worth the cost if the direct human contact is important to you. In today’s age of over-information, this can be a really valuable reason to choose to work with a consultant. A retirement consultant will give you expertise from a professional who has a primary responsibility to look after your retirement savings. Clear communications and helpful suggestions are also hugely beneficial.

There are often valuable tax benefits to contributing to your employer’s 401(k) plan as well. Since retirement contributions are made directly from your paycheck, not only do you save tax on any 401(k) payments you make, these tax-deferred contributions may lower you into a another income bracket, potentially reducing taxes on your overall income. If this is the case, the consultant fees and restricted offerings of your employer’s plan may well be worth the cost.

It’s worth noting though, that while you don’t pay taxes at the time of contributing to your 401(k), you will pay taxes when you come to retire or withdraw money from your account. However, by deferring taxes you are putting that extra money to work early, and thanks to the cumulative effects of investing, this gives you the potential to grow your retirement fund even larger!

The Costs of Actively Managed 401(k) Plans

As you might expect, the additional human management does comes at a cost. The costs of hiring a retirement plan consultant are usually baked into the fees set by your employer. Managed accounts, i.e. those managed by a professional consultants, typically charge anywhere from 1% to 3% of the value of your portfolio, while robo advisors charge less than 1%.

Plan consultants also tend to choose actively managed funds for your savings which generally have much higher expense ratios. In the long run, these fees can really add up, which has been the backbone of the long-standing debate over active versus passive investing strategies. The cumulative effects of even just 0.1% over time can equate to sizeable chunks of money.

Many claim that there is no evidence that actively managed portfolios can do better than a simple portfolio of low cost index funds. Often the lowest costs funds tend to deliver the best results for investors, for obvious reasons.

However, a recent study suggested that participants in actively managed 401(k) plans earned more than those who did not: those who paid extra for advice earned an average of 3.32 percentage points more per year, after fees, than those taking do-it-yourself approach between 2006 and 2012. It’s worth noting though, that actively managed funds tend to perform better during volatile times which was certainly the case during that time frame.

While the extra costs are debatable, there are a few reasons why a retirement plan consultant may not necessarily provide the best option. For example, the rules for choosing an investment strategy are often quite rigid, and based on high-level factors such as age or risk tolerance.

The selection of funds are often quite limited too, and it is very rare that you are are to choose specific stocks or industries for your retirement savings plan.

Final notes

Are retirement plan consultants worth it? The ultimate decision will depend on your particular financial circumstances as well as your risk tolerance. Many 401(k) plans set by consultants are quite restrictive, although if it allows you to take advantage of your employer’s company match, then it may be worth the price.

On the other hand, personal investment accounts allow you to take on much higher levels of risk for your retirement savings plan, with the flexibility to invest in funds or stocks of your choosing. Personal accounts allow you to invest for shorter time periods or for longer time periods too, unlike a more strict 401(k)plan.

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