Here's my recommendation: have him roll the 401(K)
funds into a rollover IRA (make sure it's opened as
a rollover account - I got burned this way by a local
bank several years ago. If you roll into a non-rollover
IRA, rolling the funds back into a qualified plan could
be a problem). Anyway, once the funds are in the
IRA, he can manage it himself. If he goes back to
work for a regular company, and he likes their choice
of options, he can always roll back out to their plan.
Otherwise, just keep running the IRA (even if he also
participates in their plan). This also works well if he
elects the self-employment route, since he can set
up an SEP and make his deductible contributions
(presumably to the same account - I can't imagine
why that wouldn't be allowed). I am in the process
of rolling an IRA from PaineWebber to Waterhouse,
that contains 401(K) funds from my previous two
employers (before I decided to strike out on my own).