Compensation & Benefits Partner Discusses How to Choose the Right Plan Adviser

Plan Sponsor Magazine

This article, about the different considerations that a sponsor must take when choosing or evaluating an adviser, quotes compensation & benefits partner Sarah Downie.

Beyond the basics regarding duties and fees, Downie suggested service agreements should also address four key nuances:

First, a sponsor may want to spell out details on indemnification and limitation-of-liability provisions, she says, such as specifying that, if the adviser commits a breach of the agreement, the sponsor’s recovery is not capped and is not limited to merely recovering compensatory damages, depending on the nature of the breach.

Second, make clear the requirements if the adviser subcontracts plan services, to ensure that the subcontractor gets held to the same standards and requirements as the plan’s adviser.

Third, given the number of mergers and acquisitions among advisory firms in recent years, Downie suggested thinking about a provision to address the possible ramifications of personnel or company changes. “If a sponsor hires an advisory firm because the sponsor knows that person X and person Y are the key advisers, should the service agreement have a termination provision if the business is acquired or those key advisers stop working on the plan?”

Fourth, cover transition services, in case there is a breakdown in the sponsor/adviser relationship and the agreement needs to terminate somewhat abruptly. Typically, that can mean specifying a 60-day transitional period in which the outgoing adviser continues to do work such as investment reviews, at the option of the sponsor, and shares necessary information with the new adviser.

“The sponsor does not want the adviser to just stop and go away—unless something tremendously bad has happened,” Downie stated.