|
Guest Commentary 2007 Crystal Ball - A Blinding Flash of the ObviousBy Jeb Graham CEBS, CIMA® of CapTrust Financial Advisors, an independent consulting/advisory practice focused on the institutional retirement plan market, serving corporate, closely held, non-profit and governmental organizations. You may contact Jeb at 813.218.5008 or jeb.graham@captrustadv.com. Do you see what I see? Perhaps the buzzword for 2007 will be "transparency." If Yogi Berra was on an investment committee evaluating 401k fees today, he might say "I haven't found what I am not sure I was looking for." Retirement plan fiduciaries need look no further than the recent lawsuits to remind them that the critical issue at hand is more about following prudent process and less a question of fees being excessive. Several years ago, revenue sharing payments were a non-issue. Common logic at that time could be described with the analogy of "if one is looking at car prices, it is irrelevant how much the engine cost to make...what's important is the total cost of the car." Revenue sharing payments are no longer considered unimportant. Today's analogy might be more like a professional sports team evaluating their salary cap situation...the underlying cost components and who gets paid what are very important. What do you mean you can't tell me how much recordkeeping costs? Many retirement plan service providers still don't disclose recordkeeping costs to plan sponsors...at least in a format that makes sense. The norm is still "all-in" pricing models that combine all costs underneath the investment column. But recordkeeping/participant service costs are determined by the number of records kept and the complexity of the process involved, and are not related to investment costs. A total per participant recordkeeping cost should be a standard part of fee disclosure, but as we start 2007 it is not. Look for this to change in 2007 as part of a shift to greater transparency of fees. Where is that auto pilot button? The PPA formally ushered in the era of automatic enrollment, automatic deferral increases and default investments. I feel the trend toward risk based or target age model portfolios will continue to accelerate in 2007. Something new in 2007 will be increased scrutiny of the underlying components of these model portfolios. To this point, the benchmarking of lifestyle or target funds has been arbitrary at best. Very few hoods have been looked under. Look for that to change in 2007. What were they thinking? When questioning someone's judgment, it only makes sense to understand the decision from their point of view. But at times, that is just not possible. Some of the "absolute return" hedge fund strategies come to mind here. The new year may likely bring light to some questionable investment strategies that heretofore were perhaps not well understood by the public and private sector committees on whose behalf the investments were made. Again the concept of transparency comes to mind. One can expect more implosions of "alternative" investments that may not have been clearly described to investors. Will there be a "redux" on advice under PPA? In the world of playground games, the bigger kids often enforce what is known as the "do-over" rule when a game does not start off to their satisfaction. Many proponents of the original advice bill, as sponsored by John Boehner, are calling for such a do-over of the PPA advice bill to make it consistent with what they believe legislators really intended to do...allow financial advisors to give advice, irrespective of potential conflicts of interest. Based on what I have read from ASPPA, that is not happening in 2007. Considering the growing impact of lifestyle and target date model portfolios, one could argue convincingly that participant advice (at least as proposed in the Boehner bill) will become less and less a factor in the success of a 401k plan in reaching the goal of having participants invested properly. At the same time, I believe advice at the plan fiduciary level has never been more important. Trend or fad? In the last few years, I have seen a shift in the collective mindsets of plan sponsors as to the purpose of a 401k plan. More than ever before, among 401k committees making fiduciary decisions, there is a true concern for the financial well being of plan participants. It really does seem that plans are finally being looked at as an employee benefit, and that the best interests of participants really are important. The impact of most expenses being borne by participants is now being recognized as significant. I say trend...and a very positive one at that. Best wishes to all for a happy, healthy, and prosperous 2007. This material is distributed solely for information purposes and is not a solicitation of an offer to buy any security or instrument or to participate in any trading strategy. The views contained herein are the opinions of the author. It is not intended as legal or tax advice. CapTrust Advisors, LLC is a Registered Investment Advisor with the SEC. CapTrust is not a legal or tax advisor. Other articles by Jeb Graham: Looking Under the Hood of Your 401k to Understand the Real Costs, Does Your Organization's Retirement Plan Measure Up? and The Importance of Legal Counsel Review. ### 401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. This article is for informational and educational purposes only and doesn't constitute legal, tax or investment advise. | ||||
|
About
| Glossary
| Privacy Policy
| Terms of Use
| Contact Us
|
