This past week, one of the largest asset management companies in world agreed to a settlement topping $6 million. This comes on the heels of being called out on the carpet earlier this year via class-action lawsuit, which was driven by the company’s decision to sell off a considerable amount of assets in their Target Date Fund portfolio in late 2020. That move triggered a tax liability to its shareholders that is typically not found in these types of funds. Quoting the filing in Eastern District of Pennsylvania, there was an “Elephant Stampede” sell-off from their block of retail funds.
The real interesting part is that the account holders for each of these funds had a “set it and forget it” mindset, as they should. Part of our role as advisors on the plan, especially those like me who have a 3(21) designation that allows us to engage the participants with specific fund recommendations, is to ensure that the participant fee disclosure is in alignment with what actually happens. Given the fact that Vanguard decided to go rogue and deviate from their normal approach gives me as the advisor great pause. How are we supposed to anticipate such an event? There’s not a software program in the world that would send the “Bat Signal” to my firm, the 3(38) manager, or even the participant.
As we can expect, this isn’t the first time a fund company has colored outside the lines, nor will it be the last time. My suggestion is that if you are a plan sponsor or administrator, find yourself in alignment with an advisor that actually monitors the funds. Not just the performance, but the expenses, manager changes, sharpe ratio, and so on. We subscribe (aka pay for) software that is independent of the fund company. Meaning, let’s not take their word as gospel and actually work for the advisory fees we receive in return for our efforts.
Here are 3 questions to ask your advisor during your review meeting:
- What did the investment lineup selection process entail by way of vetting the funds? We are looking to make sure the funds included in the plan aren’t listed because you play golf on the weekends with the wholesaler!
- How do you monitor the funds and communicate concerns to me as the plan sponsor or administrator? You want a clear and concise gameplan as to how this process is handled.
- How do you educate the participants on what investments are available or appropriate for them? Basically, you are looking for the advisor to act as a 3(21) fiduciary.
If you are a participant in a retirement plan or account, take a harder look at those statements. Ask questions. Challenge the philosophy that is all too familiar (to me, at least) where those paper statements hit the trash can without being opened. You pay for the advisor on the plan, so why not call them? Schedule a 15 minute review meeting and go over questions like these:
- What are my fees and how does that create a drag on my performance?
- Am I in the right funds based on my risk tolerance and proximity to retirement?
- How do I learn more about the different funds within the plan?
At PlanSimple Financial Partners, we strive for plan sponsor and participant engagement that is unprecedented in our industry. While we recognize there are a lot of wonderful advisory firms out there, we offer a personalized approach to all of our plans. Consider spending 30 minutes with one of our advisors and learning more about our service model. Schedule a time here: www.calendly.com/jmilliken