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Thursday, August 07, 2014

Your 401k Service Providers Don’t Want You To Read This!

Most 401k plans suffer from high cost, poor participation, inadequate savings, missed match, over-investing401k_Secrets in stable value and participants running when the market goes down.  Certainly no one's definition of success includes these shortcomings! 

The vast majority of service providers in the 401k arena are driven to get “assets under management”.  Every fund family and every non-fee-only advisor gets paid from assets – yours and your participants’ assets.  The more assets they capture, the more money they make—regardless of how the investments in your plan perform.  There is nothing about this that works in your interest!

Think about it: the core competence of an actively-managed mutual fund is supposed to be the achievement of marginally superior returns over a particular benchmark or index.  Well, there are decades of investment history to evaluate, so it’s very easy to see how they’ve done, and the answer is: Not well at all.  In fact, index funds of comparable investments do better 80% of the time at about 1/5 the cost!   Index funds (like Vanguard) refuse to pay advisors the incentives, bonuses and other “revenue sharing” that actively managed funds do.  And who does that benefit? The only folks that matter – you and your participants. 

Are we saying index funds are the answer to all your 401k woes?  No.  They are still just investments.  But they provide the most reliable returns at a very low cost, so they are a critical part of the solution.  Why should a plan sponsor spend even 2x (let alone 5-10x) higher fees on actively-managed funds in the hope of so unlikely an outcome?  You shouldn’t. 

What's your definition of a successful plan?  Great participation?  Low cost?  Helping employees maximize their retirement savings?  Preventing harmful participant decision-making?  Compliance?  Fiduciary excellence?  

The questions we pose in this blog are designed to get you thinking about where your plan is today, and where it might fall short of your own definition of success

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Posted by at 10:58 AM