We are shocked when we meet with plan sponsors and in our review of their advisor we find that they have no written agreement with regard to what the fee is and what services they will be providing. Most professional services industries have some sort of basic contract that outlines the project and what will be provided for the cost of the contract.
Under the old and now new five part test, we are back to the wild west of what constitutes and agreement. We would advise every plan sponsor to have a contract with their advisor or his/her firm. If they do not have one for your plan, we would recommend finding a new advisor. How can a plan sponsor satisfy the prudent man rule without a basic contract that outlines the price & services? How do you evaluate whether your arrangement is reasonable without any explicit idea regarding the services rendered?
Even though it stands to reason that you would have a contract for a service that probably costs thousands of dollars, it is shocking to find out how few 401K plan sponsors miss this simple step. They are inundated during a plan conversion with TPA contracts, recordkeeper contracts, and investment contracts for stable value investments that they forget the one contract that really matters most and that is the one from the person they think is their fiduciary.