Half of U.S. small business owners who sponsor retirement plans say fiduciary and legal responsibilities are a top concern, but only one-fifth of the owners have consulted with professionals, switched plan providers or taken other steps in the past year to increase fiduciary oversight, according to results of a survey released by Nationwide Financial Services Inc., Columbus, Ohio.

Researchers from TechnoMetrica, Oradell, N.J., conducted the survey by polling 501 owners and operators of small businesses that were at least two years old, produced more than $100,000 in annual revenue and had a maximum of 50 employees.

Many of the owners were unaware that they hold primary fiduciary responsibility for their companies retirement plans, and fewer than half of the owners with 401(k) plans in place said they had set up a formal process for evaluating investment selections on a regular basis.

“Retirement plan education is a major and immediate need among small business owners that financial advisors can help fulfill,” said Michael Butler, senior vice president of NFS Distributors Inc., a division of Nationwide Financial.

“It can be a good way for financial advisors to demonstrate their expertise and service capabilities to prospects or clients.

“Many business owners are unaware of legal responsibilities, and are at risk both personally and professionally. The financial advisor who can help identify risk factors and help clients mitigate them can deepen relationships and potentially grow their business,” he added.

The survey, “Financial Advice Today: A Small Business Perspective,” found that the majority of small business owners cannot accurately answer basic questions about their retirement plan responsibilities, yet more than four in five owners say they are comfortable that they are meeting them.

Survey results indicate small business owners may be mistakenly confident, as many report critical lapses in at least one aspect of fiduciary knowledge, namely, legal duties and obligations relating to a qualified retirement plan.

They dont realize that they hold primary fiduciary responsibility. A large percentage incorrectly identified the plan investment provider, the financial advisor and even employees as having this role, Nationwide says.

They fail to evaluate investment selections regularly. Sixty-one percent of those with 401(k) plans reported they have an investment policy statement in place, but less than that reported having a formal process to evaluate investment selections on a regular basis.

They do not question the ethicality or risk of required funds. More than one-third considers it acceptable for a plan provider to require its funds be among a plans investment options.

General retirement planning is also an apparent need among the small business community, according to the survey.

The majority, a total of 63%, of small business owners is not very certain they have appropriately planned for their business future.


Reproduced from National Underwriter Edition, July 14, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.