I have some simple rules to live by. I never bet on the Mets, eat at a place called Mom’s, play cards with a guy named Doc, or do business with family.

Yet I have come across so many financial advisors who bemoan to me that they couldn’t get a new retirement plan client because the current advisor is someone’s relative. Since when did running a 401(k) plan all of a sudden become someone’s patronage mill for family members?

Seriously, being a plan sponsor or a plan trustee is a tremendous responsibility and you must act prudently. All plan providers must be screened carefully through a process involving the interview of other competing plan providers. Simply handing the role of a financial advisor to someone related to one of the plan’s decision-makers or participant may be a breach of the fiduciary’s duty of prudence in selecting a plan advisor.

Being a plan fiduciary bears a tremendous amount of responsibility. It requires the retention of responsible plan advisors, monitoring those advisors, monitoring plan fees, shopping the Plan to determine whether plan fees are reasonable, working on an investment policy statement, review of plan investments, and ensuring participant education. So why would a plan sponsor and/or plan fiduciary by hiring a financial advisor or any type of service provider because that person is someone’s cousin? There are quite a few hundred of thousands of financial advisors not related to anyone who will works for the plan sponsor, so I would recommend hiring someone who is not related to anyone connected with the plan sponsor.

For fair disclosure purposes, I am not the ERISA attorney for any plan where the plan fiduciaries or participants are related to me.