Investment due diligence is one of the buzz phrases flying around in the 401(k) retirement plan arena. It is a critical part of responsible retirement plan management that should not be overlooked. Many of the companies that offer retirement plan services tout their due diligence process as one of the factors for doing business with them. Recent developments with one of the major 401(k) providers illustrates why having an independent investment advisor is important.

The company in question is one of the largest providers of 401(k) plans in the nation. They offer a wide variety of investment options and extensive retirement plan services. One benefit they promote is their stringent due diligence process to evaluate investment options offered in their 401(k) plans. Recently this company froze the assets in the separate real estate investment account they offer. Anyone invested in the account cannot transfer their assets to another investment. The restriction on selling the real estate investment applies even if the employer, plan sponsor, is moving all plan assets to a new 401(k) provider. All assets can be transferred except those in the real estate account. Restricting redemptions in the real estate account is legal since their prospectus states that the management company has the right to do so for up to three years.

There is a conflict of interest when the real estate investment account is a proprietary investment managed by the company that provides the 401(k) services and is supposedly doing the due diligence on investments. Depending on the same company that provides many of the investment options in your 401(k) plan to do your due diligence is like having the fox guarding the hen house.

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