Ben Treece: What you don’t know about your 401(k)Written by Ben Treece | | firstname.lastname@example.org
Whether it be our commentary in the Toledo Free Press, Dock on WSPD or any of the other outlets we contribute to, we strive to provide the most accurate and detailed economic analysis that we can without giving specific investment advice. Our clients pay us to apply our knowledge to their portfolios and keep them positioned in the right place at the right time. It would be disingenuous for us to give away for free what they compensate us for. However we do have some advice for non-clients regarding their retirement; pay CLOSE attention to your 401(k) in the near future.
Recent ERISA regulations have stated that 401(k) plans (as of this summer) will be required to provide participants with full disclosure of any fees that are charged to individuals or to the plans as a whole. We believe that when participants discover how much they are paying their plan advisers, they will probably ask the question, “Just what am I paying them for?” It is imperative that anyone with a 401(k) review these fee disclosures and ask themselves that question.
No longer is a company simply having a 401(k) plan enough, but having a good plan with the right investment options is becoming more and more critical. A frightening trend in the 401(k) field in recent years has been to cut the number of options down to as few as 12 in some cases with those dozen options having a very broad focus, i.e. Large Cap Growth funds or Target Date Funds (TDFs) such as “Retirement 2020.” This slashing of options was done with the best of intentions, but actually works as a disservice to participants. Many 401(k) participants decide to have their account independently managed, and many of these options do not fit with an outside adviser’s structure or investment strategy. Furthermore, TDFs operate more as a product than an investment. We would hope that no logical investor would see the benefit of buying bonds right now with interest rates at historical lows; however, some TDFs have upward of 80 percent of the portfolio’s exposure to bonds.
This attempt at creating a retirement “Easy Button” for participants has also made many advisers unwilling to spend the necessary time catering to the customer service needs that these plans and their participants require. If a client has fewer options, then fewer questions, right? Oftentimes this is the exact opposite result that comes from allowing fewer investment options. As a participant, if you are paying an adviser to advise you and your plan, they should be doing just that. Can you remember the last time you sat down with your adviser face to face? What about the last time you talked to them on the phone? Do they return your emails right away? These are all basic customer service requirements that many 401(k) plan advisers have been failing to provide to their participants.
As a 401(k) participant, this is the one piece of free advice that we can give you: You can make a change. If you are not happy, do not continue down a path of high costs and low returns just because you feel that change is impossible. Remember that a 401(k) plan is set up by the company you work for to benefit YOU, and no one else. If enough of the employees are unhappy and vocalize their complaints, changes can and will be made, usually very swiftly. Sometimes these changes are small, sometimes they require an entire plan to be restructured, which actually sounds much more difficult that it really is. We serve as plan adviser for a company out of Auburn Hills and did a complete overhaul of their 401(k). From start to finish, the entire process took about one month.
When you finish reading, ask yourself these two questions: “What am I paying my adviser for? Are they really earning their fees?” If you do not have a definitively positive answer for either of those questions, speak up now, for your retirement’s sake.
Ben Treece is a 2009 graduate from the University of Miami (Fla.) with a bachelor’s of business administration degree in international finance and marketing. He is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and a stockbroker licensed with FINRA, working for Treece Financial Services Corp. The above information is the express opinion of Ben Treece and should not be construed as investment advice or used without outside verification.