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Friday, March 28, 2014

Read The Essential 401k Whitepaper!

401k plans are in the news constantly.   White_Paper_Cover-1We've read hundreds of articles on the topic of investment choices, expense, etc - some that are spot-on, but the vast majority of them are completely misguided.

Why are so many of these articles misguided?  Because they accept standard practices of the 401k industry as they are (example: revenue-sharing).  The reality is that most of these common practices are inherently harmful - both to the plan sponsor, and his participants.  

We believe that it's crucial for plan sponsors and participants alike to understand what parts of the industry are broken, and that it's within your reach to fix them.  

Check out our new 401k whitepaper, which will take to you deeper into how the industry got to where it is today, and show you that a truly successful 401k plan is possible.

GET THE ESSENTIAL 401K WHITEPAPER!

Posted by 401K Revolt at 7:00 AM
Monday, March 24, 2014

The Villainy of Concealed 401k Fees: Part 3

In our past blogs, we’ve taken a look at the high cost inherent in actively managed mutual funds andhidden 401k fees the high cost that comes from share classes.  There are numerous less prominent cost-concealing tactics at work out there, but the last one we’ll talk about here is hidden in plain sight. 

Note that all 401k expenses are expressed as percentages and never as dollar amounts.  That is the industry standard.  It also means that as assets in your plan go up, compensation (and thus your cost) increases automatically as well.  Great pains are taken to warn participants that their investments are not guaranteed and that they may lose money.  But their expense (the revenue they “share” out of their account) is guaranteed and the advisor will never lose money.  

In other words, no matter what number and quality of services are provided, the compensation paid by the plan is going to constantly increase.  Click here for a graph that illustrates what that means to your plan and participant accounts—the effect this has over time is not pretty, and we bet your plan participants would agree!  

It’s time to revolt against expenses that are inappropriately tied to assets—and all the other purposely concealed costs and shady practices that are built into the 401k industry.  We hope that you’ve been inspired to dig a little deeper into YOUR 401k plan as we’ve brought some of the more egregious cost-concealment practices to light.  Don’t let the villains continue to steal what belongs to you and your employees! 

 

Remember: cost is only one of the issues inherent in today's 401k plans.  There are several other areas you'll need to attack if you want a truly successful 401k plan.  To read more, click the button below.

Click Here to Learn about  the Other 401k Problems

Posted by 401K Revolt at 11:49 AM
Monday, March 17, 2014

The Villainy of Concealed 401k Fees: Part 2

Perhaps the most egregious example of concealment in 401k plans is the ruse of so-called “share classes”Hidden 401k fees in mutual funds—another type of revenue sharing, which we defined in our last blog.  Here’s a real example:

American Funds offers a popular mutual fund called Growth Fund of America.  As actively- managed funds go, Growth Fund of America is pretty inexpensive.  American Funds charges 34 “basis points” (what most humans would call .34%) to invest in it.  But that’s before the revenue sharing created by “share classes”.  So how much do these various share classes add to your cost? 

There are actually six answers to that question, because there are 6 versions (or share classes) of this fund: 

  • R6 is the version that costs .34% with no revenue sharing
  • Then there’s R5 at .39%
  • R4 at .68%
  • R3 at .98%,
  • R2 at 1.37%
  • R1 at 1.44% 

The fund investments are identical in all the classes – only the expense loads are different!  American Funds keeps only the .34% on all of them, so where does the rest go and who decides which version goes in your plan?  Advisors, brokers and others decide which classes are in your plan and they keep the added.  Do you know which share classes are in your plan?  Do you know who’s getting what?  Did your advisor ever discuss these cost differences with you or tell you the dollar value?  Or was this the first time you ever heard of share classes?

If discovered, fund families and advisors defend share classes as an accommodation for plan sponsors (!) who want participants to bear the cost of the plan.  This is pure nonsense.  Any legitimate plan-related costs can be itemized and then shared with plan participants without any need for undisclosed revenue sharing or the additional shrouding of share class pricing.  Share classes have one beneficiary - those who wish to conceal their cost and compensation from plan sponsors and their participants – there is no other reason to have them.

It’s time to revolt against the scam of share classes.  With a few rare exceptions, the industry has no focus on what’s in your best interest and each financial element works against the financial well-being of the participant.

It’s hard to think of once-trusted advisors as villains but the numbers, in this case, do not lie.  Either the advisor is acting in his own interest or he is unaware of how 401k plans really operate.  If you are a participant, you should implore your employer to study and remedy this.  If you’re a plan sponsor, you are a fiduciary under the law, and you’re obligated to fix it.

 

Remember: cost is only one of the issues inherent in today's 401k plans.  There are several other areas you'll need to attack if you want a truly successful 401k plan.  To read more, click the button below.

Click Here to Learn about  the Other 401k Problems

Posted by 401K Revolt at 2:19 PM
Monday, March 10, 2014

The Villainy of Concealed 401k Fees: Part 1

In our last blog, we said it was time to declare war on 401k fees and promised to break down the expense components, so that you can see clearly “where the villainy lives”.  Here we go! 401k fees

Overcharging becomes villainy when there is purposeful concealment of cost – and that describes the 401k world perfectly. 

Why can’t the average CFO, let alone the average participant, easily figure out what his 401k plan actually costs? 

Why didn’t fee disclosures exist until they were required by law? 

Why are those disclosures are 33 pages long when they could be one?

Are you getting suspicious yet?

The most basic and nearly omnipresent practice of concealment has to do with actively-managed mutual funds.  About 85% of plan assets are invested in actively-managed funds, yet they are, on average, 5x to10x the cost of passively-managed (index) funds.  Most folks believe that the cost differential is justified by the fact that actively-managed funds outperform index funds.  Why do they believe that?  Because their advisors and the fund families constantly suggest that it’s true.  But it’s utterly false.

Conservatively, index funds outperform actively-managed funds more than 80% of the time – some studies have it as high as 95% of the time.  There are no studies that prove the opposite.  There are no studies that say index funds win only 70% of the time.  We cite studies elsewhere on our website, but there are many and they are conclusive.  Every educated investment advisor knows the return history of actively-managed funds vs. index funds, so why don’t you ever hear about it from them?  Because they don’t want you to. 

Actively-managed funds employ a lot of people to do all that …managing!  And those managers apparently need to make a ton of money.  We’re not sure why.  Maybe it’s to overcome the depression of being wrong 80+% of the time?

But hold on, why would an investment advisor that works for me suggest investments that don’t perform as well as others?  Well, actively-managed mutual funds pay advisors and brokers to recommend their funds.  Some pay more than others. They call it “revenue sharing”.  Index funds pay little or nothing to be recommended.  Are you getting suspicious now?

Is “revenue sharing” an every-day term for you?  What does that mean anyway?  Whose revenue are we talking about?  That would be plan participants’ retirement savings.  And who is it being “shared” with?  That would be the investment advisor or broker.  Did the participant generously decide to share his revenue with anyone? Nope, he doesn’t even know about it.  Does it show up in his fee disclosure? Nope.  Sounds like villainy to us!

So let’s review.  Actively-managed funds court, entertain and pay advisors to recommend their funds using participants’ money and call it “revenue sharing”.

If you’re still not ready to think of the 401k industry as untrustworthy, stay tuned for parts 2 and 3 of this series.  We’ll talk about the depth of deviousness in so-called “share classes” and the massive overcharging that is hidden in plain sight.

 

Remember: cost is only one of the issues inherent in today's 401k plans.  There are several other areas you'll need to attack if you want a truly successful 401k plan.  To read more, click the button below.

Click Here to Learn about  the Other 401k Problems

 

Topics: 401k Cost

Posted by 401K Revolt at 5:23 PM