HACK YOUR COMPANY’S RETIREMENT PLAN
UNCOVER FEES • QUESTION AUTHORITY • EMPOWER YOURSELF
My thinking is rooted in challenging the status quo in the group retirement plan industry, which I do by helping businesses effectively select and monitor retirement plan service providers, ask detailed questions about their plan so they can better understand the fees and services, and make informed financial decisions that they can’t currently make due to the severe information asymmetry that exists in the industry. More specifically, I focus on helping plan sponsors and participants:
Select and monitor the plan investment options
Establish an appropriate investment allocation for each participant
Determine an optimal contribution rate
Develop a budget
Figure how much should go into the Roth vs. traditional 401(k)
Effectively use the features on the record keeper’s website
Highlight and address excessive and misunderstood service charges
Shine light on service provider conflicts of interest
Some industry thought leaders who share this viewpoint include:
Ted Benna, inventor of the 401(k), Founder and President of the 401(k) Association
Fred Barstein, Founder & CEO of The Retirement Advisor University and consulting editor at Investment News
Edward Siedle, former SEC attorney, pension forensics expert, and record-setting whistleblower.
Bert Whitehead, President of Cambridge Connection Inc., Founder of the Alliance of Cambridge Advisors (now the Alliance of Comprehensive Planners), and the author of “Why Smart People Do Stupid Things with Money.”
Hi, I’m Paul Sippil
A Forensic 401(k)Consultant.
Ted Benna’s criticism is especially incisive, as it not only diagnoses the problem but also presents a clear and simple solution:
“The advisors are getting paid each time they go through the process with an employer to help pick funds as if they’re doing an original piece of work. There are more than half a million 401(k) plans, so that’s happened over half a million times. The fund menus aren’t that much different. But advisors are getting paid as if they’re doing an original piece of work. That’s just bizarre, extremely inefficient, and much too expensive.
First of all, they need to get away from asset-driven compensation and be paid a fee for service, the same as accountants or attorneys, who don’t get paid a percentage of corporate [client] assets. Their role should shift to helping people focus on how to succeed at retiring successfully, not on investment return. Building a smarter investment mix is pretty much of a commodity now. The focus should be on goals: “I want to retire successful. Help me do that.
Instead of teaching clients small-cap, large-cap, value vs. growth and that stuff, help participants find ways to save more to do a better job of financial management and focus on the stream of income they’ll [need] for their retirement.”
Industry Quotes
Are you ready to REDUCE fees and CHALLENGE the status quo?
Most 401(k) and 403(b) plan fees, especially for plan advisers and record keepers, are upside down. Their fees are based on plan assets, while their costs are based on activity and the number of participants. … Advisers and providers that don’t adjust will be left behind.”
Fred Barstein, Founder & CEO of The Retirement Advisor University and consulting editor at Investment News
“Plan sponsors are more knowledgeable than participants but, given that over 92% of defined contribution plans have less than $5 million in assets and have no full-time employee with investment expertise responsible solely for the plan, an overwhelming majority of sponsors rely upon providers for turnkey solutions to plan needs. These providers largely control the flow of information to sponsors and (with the consent of the sponsor) are responsible for communications to participants. Not surprising, providers of services to plans have taken advantage of their “informational advantage” and the inability of sponsors and participants to commit time to scrutinizing economic arrangements between providers and plans.
Providers have prospered even as participants have suffered mediocre results. Sponsors, freed of liability related to these plans, have little incentive to intervene.
As a result of lack of transparency regarding questionable industry practices, the market for defined contribution retirement plan service providers, including record-keepers and investment managers, remains uncompetitive despite a large number of vendors and plan sponsors. Excessive fees and poor performance are commonplace. Yet providers maintain the industry is not to blame for these unfortunate results. Industry solutions to problematic performance (such as target date funds and personalized financial advice) inevitably involve heaping even greater costs onto investors, further reducing the likelihood of satisfactory net performance. Dissatisfaction with defined contribution plans has grown as evidence of wrongdoing has mounted (and the markets have faltered) and is at an all-time high.”
Edward Siedle, former SEC attorney, former Legal Counsel and Director of Compliance to Putnam Investments
The National Association of Financial Advisors (NAPFA) has long championed the importance of commission-free financial and investment advice. The media has recognized their contribution in exposing unethical practices fostered by commission-based compensation. Now, however, most stockbrokers and fee-only advisers (including NAPFA members) charge fees based on AUM. In terms of compensation, the two types of advisers have become indistinguishable. As a pioneer and current member of NAPFA, I believe that advisers who charge AUM fees fall short of what should be expected of true fiduciaries.”
Bert Whitehead, the President of Cambridge Connection Inc., Founder of the Alliance of Cambridge Advisors (now the Alliance of Comprehensive Planners), and the author of “Why Smart People Do Stupid Things with Money”