Selecting an Investment Advisor

It was about 15 years ago when I was a young, idealistic, new investment representative. Working for a well-known, national brokerage firm, I was eager to learn the best practices of successful advisors. I joined a networking group with the hope of gathering wisdom from the investment industry’s best. Each month we would meet to analyze client cases. I presented the case of a client who would be coming to see me that day. My client had recently sold a second home and had $125,000 he needed to invest. After presenting my case I waited to hear the advice of these veteran financial planners. The most successful of the group confidently announced that I should recommend the XYZ variable annuity. I had never sold this product before so I asked for an explanation. My mentor told me the reason to sell the variable annuity was “YTB”. All of the other representatives in the group nodded in agreement but I’d never heard of “YTB”. Thinking I was unfamiliar with a unique product feature, I asked for an explanation. The group laughed and said “YTB” meant “Yield to Broker”. The product they recommended gave the highest payout in the industry. As I listened to the other presentations, I realized that all they ever recommended to each other were the products that paid the most or offered the best “due diligence” trips. Soon after I stopped meeting with this group. My wide-eyed innocence was gone.
The lesson that I hope you take from this is to get to know your advisor and approach each recommendation with a critical eye.

401k Plans - Why Fees Matter

Just read a very interesting article about the structure of 401k fees and the "hidden" effect they can have on your ultimate investment performance. While this article is a bit academic in nature, there are many relevant takeaways that apply to nearly everyone who participates in, or sponsors a retirement plan:

• Over a 30-year career, paying an additional fee of .50% can reduce the purchasing
  power of savings at the time of retirement by one-eighth.
• Complete disclosure of fees help employers fulfill their fiduciary responsibility to ensure that the 401k plan they sponsor does not impose unreasonable costs for their employees.
• The Department of Labor is revising regulations to require sponsors to report the fees of their 401k plans more clearly to their employees.

As I have noted many times before, one of the keys to a successful 401k plan is the cost of the plan itself. These costs come in many forms, and it is important that you are able to identify as many of them as possible. At Symphony, all of the fees and costs are completely disclosed and transparent. Can your current provider make the same claim?

Hidden Fees in 401(k)s

By offering a retirement plan, business owners have a legal responsibility to make prudent decisions regarding the plan’s management. These decisions include selecting investments, choosing options like brokerage accounts or loans, and picking the right service providers. Many of these decisions require an in-depth understanding of plan costs.

There’s the challenge. Retirement plans have so many fee types it is rare that a plan sponsor can easily calculate the true cost of their plan.

Fred Reish, arguably the leading retirement plan attorney in the country, recently provided a few reasons why it’s important to make the effort to understand what’s being paid.

• “The DoL has taken the position that fiduciaries have a duty to know and evaluate indirect payments. In performing that evaluation, fiduciaries need to consider whether the total amounts received, directly and indirectly, by their service providers are reasonable. Further, fiduciaries must evaluate whether the payments cause potential conflicts of interest and, if so, whether the plan and participants are protected from those conflicts.”

The article goes on to describe two of the most common hidden fees and potential conflicts the employer should be aware of.

Employers shouldn’t just evaluate fees when they set up the plan, they should also monitor fees and expenses throughout the life of the plan to be sure the costs continue to be reasonable as assets grow.