Is Your 401(k) or 403(b) Really Protecting Your Best Interests?

Facts do not cease to exist because they are ignored.
Aldous Huxley

I have seen a number of articles recently online and in the trade publication I receive talking about “retirement readiness,”how to better prepare a plan’s participants for a successful retirement. Most of the articles focus on increasing employee participation in a company’s plan, in some cases forcing enrollment through automatic enrollment, and increasing the amount of employee contributions to a plan.

Very few of the articles address the issue of the quality of the plan itself, even in the face of ongoing decisions and multi-million dollar settlements of cases alleging excessive fees and/or imprudent investment options within a plan. The obvious question is whether it is fundamentally unfair to force employees in a fatally flawed 401(k) or 403(b) plan?

The excessive fees cases typically focus on issues such as revenue sharing, with mutual funds in the company’s plan returning some of the money received from 12b-1 fees and other fees to a plan to help pay for a plan’s bookkeeping and other administrative costs. A Wall Street Journal article reported that one organization estimated that a two wage earner family would lose approximately $155,000 over their lifetime to a plan’s fees. While the fees for such services typically vary according to such factors as the size of a plan, most experts have told me that such costs should not be more than approximately more than $35 per plan participant in most cases.

While the excessive fees cases generally target the amount of the bookkeeping and administrative fees themselves,  the impact of 12b-1 fees, and the evidence supporting the justification for the excessive fees, is also a consideration. If a mutual fund within a plan charges an annual 12b-1 fee, the fee is typically 0.25 percent of the total amount invested in the fund. Many people see the small percentage amount and simply dismiss the fee as insignificant, and that’s exactly what the mutual fund wants investors to do. But is it really insignificant?

It is not unusual to see millions of dollars in various investments within a plan. The cumulative impact of an “insignificant” 0.25 percent 12b-1 fee provides a much different picture.  An 0.25 percent 12b-1 fee on a fund with $5 million invested in would produce $12,500 per year for that fund. Multiply that by the number of other funds in a plan charging a 12b-1 fee, and it is easy to see why 12b-1 fees are not insignificant at all.

Pension plan service providers, mutual funds and plan sponsors attempt to justify 12b-1 fees as helping plan participants by avoiding having to make plan participants pay for a plan’s bookkeeping and other administrative costs. Interestingly,very few plans allow the plan participants to decide if they would rather pay their portion of such costs instead of paying 12b-1 fees.

If we assume an annual bookkeeping fee of $35 per participant in a plan with 100 participants, the total cost for the plan would only be $3,500, much less than the $12,500 hit from just the one fund 12b-1 fee. At 100 employees, that $12,500 12b-1 fee would translate into a $125 fee per plan participant, a fee approximately 257 percent higher for the same services.

That’s exactly why you have seen, and will continue to see. the numerous lawsuits against 401(k) plans. The evidence of such abusive practices is so clearly in violation of ERISA’s fiduciary duties that the decision to bring an action is a no-brainer, the proverbial “low hanging fruit” as business schools like to teach.

Bottom line, check the prospectus for each investment option within your 401(k), 403(b) or other pension plan and do the math for yourself. If you and other plan participants find such abusive practices in your 401(k) or 403(b) plan, ask your plan’s sponsor and administrator to eliminate funds charging a 12b-1 fee from the plan and allow plan participants to pay their pro-rate portion of a reasonable annual bookkeeping and administrative fee. A refusal to allow this request could constitute a breach of the plan sponsor’s fiduciary duties of loyalty and prudence.

Another key issue in most of the cases that have been filed against 401(k) plans is the quality. or lack thereof, of the investment options provided by the plans. the primary investment option in most pension plans are mutual funds. In most cases, the lawsuits cite both the fees charged by such funds and the persistent under-performance of such funds.

Historically, most of the mutual funds offered within 401(k) and 403(b) plans were actively managed mutual funds, this despite the fact that history has proven that the overwhelming majority of actively managed equity-based mutual funds have proven to be inefficient in terms of both cost and performance. The most recent Standard & Poor’s SPIVA report stated that in 2015, 74.81 percent of all domestic equity-based mutual funds under-performed the broad-based S&P Composite 1500 Index. The five and ten-year performance of said funds were equally bad, with an under-performance record 88.43 percent and 83.18 percent, respectively. The poor performance record was consistent among individual categories (large cap, mid cap and small cap) as well.

What makes the poor performance record of such plan investments even worse is the fact the actively managed funds typically charge much higher annual fees than passively managed, or index, mutual funds. As Rex Sinquefield, one of the founders of Dimensional Funds, once noted,

We all know that active management fees are high. Poor performance does not come cheap. You have to pay dearly for it.

Poor performance and costs reduce a mutual fund’s end return to investors. Each additional 1 percent of fees and expenses reduce an investor’s end return by approximately 17 percent. Under-performance is an opportunity cost in that it further reduces the return an investor could have earned in a prudent investment alternative.

I recently performed a forensic analysis of the 403(b), 457(b) and Optional Retirement plans of a major American university. Out of a total of 128 mutual funds, only 16 passed my prudence screen based on their nominal five-year annualized returns. That number shrank to only six when the funds were evaluated on their five-year risk adjusted return.

Those findings are fairly consistent with my findings from other forensics analyses of the investment options offered within 401(k), 403(b) and 457(b) retirement plans. The findings are surprising not only in terms of the high percentage of poor investment options, but also because plan sponsors face unlimited personal liability for any breach of their fiduciary duties under ERISA, including the failure to select and maintain prudent investment options within their plan.

A quick and simple method of evaluating the prudence of the investment options within a plan is to use the Active Management Value Ratio™ 2.0 (AMVR), a metric I created for both my law and investment education practices. The AMVR is the same cost/benefit analysis that many of us learned in our first year Econ 101 class. The only difference is that the AMVR uses an actively managed mutual fund’s incremental cost and incremental return to determine the fund’s cost efficiency. The AMVR only requires a limited amount of data,all of which is available for free online, and takes only a few minutes per fund analyzed. Further information about both the AMVR and the steps required in calculating the metric are available here.

The ongoing trend of cases against 401(k) plans indicates two main things for retirement plan participants. First, a significant number of 401(k) plans and other retirements are not providing plan participants with a meaningful opportunity to become retirement ready, the opportunity to invest in investment options that are efficient both in terms of cost and performance.

Second, since a number of plan sponsors are not taking the proper actions to correct the problems within their plans, it is incumbent on plan participants to learn how to evaluate their plans and to take the time to do so. Fortunately, the AMVR can perform a meaningful analysis of a fund in one or two minutes. When plan participants detect an imprudent investment option or excessive fee in their plan, they should get together and address the situation with their plan’s sponsor. Since plan sponsors face unlimited personal liability for any breaches of their fiduciary duties under ERISA, one wold hope that they would be receptive to such requests.

Posted in Common Sense, ERISA, Fiduciary, Investment Advice, Investment Portfolios, Investor Protection, IRA, pension plans, Portfolio Construction, portfolio planning, Retirement, Retirement Plan Participants, Retirement Planning, Uncategorized, Wealth Accumulation, Wealth Management, Wealth Preservation | Tagged , , , , , , , , , , , , , , , , ,

Four Things Every Investor and Fiduciary Should Remember-2016

The abundance of investment products and investment information available today can be intimidating and confusing to many investors, both novice and professional. Without question, the most common questions I get from people are how to properly manage their investment portfolios and/or how to evaluate financial advisers.

Over my twenty-plus years as an attorney and investment adviser, I have tried to help others focus on some of the critical information in order to avoid unnecessary investment losses, to help level the playing field against some of the ne’er-do-well that continue to defraud the public and plague the financial services industry.

I started thinking about some of the “inside” information I have shared with my clients that produced the most reaction and appreciation.  In hindsight, I think four core facts/numbers/principles have stood out the most to me and my clients.

1. “75″ – The number “75″ is actually important for two reasons.  First, a study by Schwab Institutional found that approximately 75% of investor portfolios were poorly structured and unsuitable for their investors given the investors’ financial needs and goals.  I believe that this is primarily a result of the fact that (1) stockbrokers are not required to act in a client’s best interests, and (2) investors are often mislead by portfolios that appear to be diversified because they hold a number of different types of investments, but such portfolios are often not truly, effectively diversified.

The second reason that the number “75″ is important is because research and history have shown that approximately three out of four , or 75%, of stocks follow the general trend of the market.  So, bottom line, it is hard not to make in a bull market. This simply supports the popular Wall Street adage, “[don’t] confuse brains with a bull market.”

2. “94″ – While there are many firms and individuals in the financial services industry calling themselves wealth managers, a study by CEG Worldwide, a well-respected financial services consulting firm, concluded that 94% of those calling themselves wealth managers or claiming to provide wealth management services failed to meet the criteria used to qualify as wealth managers.  The criteria that CEG used in their study to determine true wealth management was based primarily on advisers who practiced wealth management as a process as compared to those who simply used “wealth management” as a marketing ploy to push product.  This is the same criteria that investors and fiduciaries should use in choosing a financial advisor to work with.

Secondly, one expert has suggested that this number (OK, actually 93.6, which rounded off is 94), and the study that produced it may have caused more damage to investors than any other number/study.  The number comes from the famous 1986 Brinson, Hood and Beebower (BHB) study that stated that 93.6% of the variation of a portfolio’s returns could be explained by the portfolio’s asset allocation.

The study did not say that asset allocation explained 93.6% of the portfolio’s actual returns, but rather the variation of the portfolio’s returns.  Nevertheless, dishonest brokers and advisers misrepresented, and still do misrepresent,  the BHB study’s findings to convince investors to choose an asset allocation and rigidly adhere to it, despite the proven cyclical nature of the markets.  This is the mantra of the” buy and hold” approach to investing, an approach that some have suggested is better described as the “buy, hold and regret” approach to investing.  Just ask investors how well that worked during the 2000-2002 and 2008 bear markets.

3. Zero – This number represents the number of variable annuities (VA) and equity indexed annuities (EIA) an investor should own.  As a former compliance officer and a current securities attorney I have heard all the convoluted and conniving justifications for these atrocities.  I have written posts and articles warning investors about these products.  While there may be a few limited instances where they may make sense, such as wealth preservation for high net worth investors, the way they are marketed to the masses is extremely questionable.

One Wall Street Journal article reported that variable annuity salesmen were told to treat potential annuity clients as “blind twelve-year-old,” and to “put a pitchfork in their chests,” and provide questionable responses to potential client’s questions.  VA salesmen and VA advertisements often tout that by purchasing a VA the investor will never run out of money.

What is often not made clear that in order to guarantee that lifetime stream of money, you give up all rights to the money invested in the VA.  Once you annuitize your VA, the balance goes to the insurance company once you die, not to your heirs.  In most cases the insurance company offers various choices for payout, such as joint survivor and a guaranteed period, but these options generally result in lower periodic payouts and, in  some cases, additional fees.

One of the most onerous aspects of VAs is the excessive fees that most VAs charge, especially with regard to the so-called death benefit.  VAs typically guarantee that in the event the VA owner dies without having annuitized the VA, the owner’s heirs will receive either the accumulated value of the VA at the time of the owner’s death or the amount of the owner’s actual investment in the VA, whichever is greater.  So the VA issuer is only insuring the amount that the VA owner actually puts in the VA.

Meanwhile, the insurance company assesses the VA’s annual death benefit fee not on the basis of their actual legal obligation, which is the amount of the VA owner’s actual investment, but rather on the accumulated value of the VA.  One study estimated that the actual expense of the annual was approximately 0.10-0.12, but that the insurance companies often charged approximately 1.50%, or approximately fifteen times the estimated value, resulting in a nice windfall for the insurance company.  The additional fee also cost a VA investor by reducing this investment return.

EIAs are also problematic.  EIAs are generally sold with the pitch that investors can earn the same return that the stock market does, with the guarantee that even if the market is down, the EIA investor is guaranteed a minimum return.  What many investors are told is that the potential return is usually capped at a relatively low number, say 10%, and then  is reduced even more by a “participation rate,” usually an additional 2-3% reduction.  In short, the EIA investor is looking at annual rate of between 2-7%.  If the market is up 20% or more for the year, just who is getting the benefit of the excess over the investor’s return?

4. “Portfolio management is-and always should be-a defensive process.” – Charles Ellis

As people who follow me know, I am a devoted fan of Charles D. Ellis. In my opinion, his book, “Wining the Loser’s Game,” is the best book on investing and should be required reading for every investor.

Far too many investors and financial advisers spend their time chasing investment returns. As we discussed earlier, three out of four stocks follow the general trend of the market. So the market will take care of the upside. Investors, fiduciaries and investment professional should spend more time implementing strategies to that will provide downside when the inevitable market corrections and bear markets occur. Yet few do.

When I speak to groups of investors I always reinforce the value of defensive investing by ask pose the standard 50% loss/50% gain question to them – if my $10,000 portfolio loses 50% in year 1, followed by a 50% gain in year 2, what is the value of my portfolio at the end of year 2? Invariably, there will be those that say the value of the portfolio is zero (50-50). The correct is answer is obviously $7,500, since the 50% return in year 2 was only the $5,000 value as a result of the 50% loss in year 1. (Note: For those interested , the formula for calculating the amount of return needed to recover from a loss is [(1/1-percentage of loss)-1] times 100.)

Many stockbrokers and other financial advisers try to discount such losses by blaming the markets and claiming that everyone is also losing money, that simply is not, and should not be true, at least not to the same extent as those who failed to implement effective defensive strategies in constructing and managing their investment portfolios. Whether the chosen strategy is as simple as proper diversification and/or rebalancing, or a little more advanced strategy such as the use of protective puts and/or inverse index funds, there are effective wealth preservation strategies that can help provide the downside protection that all investors need to reduce potential investment losses.

Investment losses are not only costly in terms of the actual loss sustained, but they also constitute an opportunity cost since once the market does recover, the capital lost during the downturn in the market cannot fully participate in the new gains in the market since it must help recover from the previous loss. As I tell [people, “you’ll never get ahead if you have to spend all of your time catching up.”

In my practice, I believe that adopting a defensive approach to wealth management includes preventing losses due to unnecessary fees and costs since they also reduce an investor’s end return . By focusing on investments that are cost-efficient, an investor can attempt to maximize the benefits of compound returns on their portfolio.

I created the Active Management Value Ratio™ 2.0 (AMVR) to provide investors, attorneys, financial advisers and other financial professional with a simple means of evaluating the prudence of actively managed mutual funds. Despite their poor historical performance records against passively managed, or index, funds and the facts their fees and other costs are often 300-400 higher than index funds, approximately 80 percent of all money invested in U.S. mutual funds is invested in actively managed mutual funds.

The AMVR is based on studies by investment icons Charles Ellis and Burton Malkiel. As Ellis points out in “Winning the Loser’s Game,”

Index funds reliably produce a “commodity product” that reliably delivers the market rate of return with no more than market risk….When a commodity product is widely available, the real cost of any alternative is the incremental cost as a percentage of the incremental value. So, rational investors should consider the true cost of fees charged by active managers not as a percentage of total returns but as the incremental fee as a percentage of the risk-adjusted incremental returns above the market index.1

[T]he incremental fees for an actively managed mutual fund relative to its incremental returns should always be compared to the fee for a comparable index fund relative to its returns. When you do this, you’ll quickly see that the incremental fees for active management are really, really high – on average, over 100 percent incremental returns!2

That’s right: All the value added – plus more – goes to the manager, and there’s nothing left over for the investors who put up all the money and took all the risks.

In computing a fund’s incremental costs, the AMVR uses both a fund’s stated expense ratio and a calculation of the fund’s trading costs. While many investment formulas factor in a mutual fund’s expense ratio, I have never seen a formula that includes a fund’s trading costs in the evaluations process.

One of the reasons for this oversight may be the fact that mutual funds are not legally required to report their actual trading costs. However, trading costs are a legitimate issue, as they do reduce a fund’s bottom line and, consequently an investor’s end return. Furthermore, as noted by investment icon Burton Malkiel in his classic, “A Random Walk Down Wall Street,”

Past performance is not helpful in predicting future returns. The two variables that do the best job in predicting the future performance [of mutual funds] are expense ratios and turnover.

The process for calculating the AMVR for an actively managed mutual fund is straightforward and only requires the ability to add, subtract and divide.The data needed to perform the calculation is available online for free at such site as morningstar.com, yahoo.finance.com,and marketwatch.com.

A fund’s AMVR score is calculated by dividing a fund’s incremental, or additional, costs by the fund’s incremental, or additional, returns. If a fund fails to provide any positive incremental returns above and beyond those of a less costly index fund, then the fund is obviously not a prudent investment option. Likewise, if a fund does provide a positive incremental return, but the fund’s incremental costs exceed such incremental return, then the fund is obviously not a prudent investment since an investor would actually lose money on the investment. A more detailed description of the AMVR and the calculation process is available here.

The AMVR also provides a means for investors to evaluate the quality of advice that they are receiving from their financial advisers. Investors should perform their own AMVR calculations on the investments being recommended to them or that are actually in their investment portfolios and immediately question any recommendations that fail to produce an acceptable AMVR score. Investors in 401(k), 403(b) or similar pension plans should calculate the AMVR score for each investment option in their plan and question any investment option with an unacceptable AMVR result.

So that’s my approach to successful wealth management in a nutshell. I do use some additional screens in analyzing investment portfolios, but the AMVR has proven to be very effective as a first step in eliminating imprudent investments. Investors and fiduciaries that use the AMVR and remember the principles and numbers discussed in this article should be in a better position to protect both their financial security and/or their clients’ financial  security.

© Copyright 2016 InvestSense, LLC. All rights reserved.

This article is for informational purposes only, and is not designed or intended to provide legal, investment, or other professional advice since such advice always requires consideration of individual circumstances.  If legal, investment, or other professional assistance is needed, the services of an attorney or other professional advisor should be sought.

Posted in Fiduciary, Investment Advice, Investment Advisors, Investment Portfolios, Investor Protection, portfolio planning, Portfolio Planning, Retirement Planning, Variable Annuities, Wealth Accumulation, Wealth Management, Wealth Preservation | Tagged , , , , , , , , , , , , , , , ,

James W. Watkins, III, quoted in new 401(k) article

I was recently quoted in an article addressing best practices of leading 401(k) plans. The article raises a number of relevant issues regarding providing a meaningful plan to help plan participants accomplish their financial goals.

The article, “Is your 401(k) helping or hurting your retirement savings,” is available at the MarketWatch web site:

http://www.marketwatch.com/story/is-your-401k-helping-or-hurting-your-retirement-savings-2016-07-06

Posted in Common Sense, ERISA, Fiduciary, Investment Advisors, Investment Portfolios, Investor Protection, pension plans, portfolio planning, Retirement, Retirement Distribution Planning, Retirement Plan Participants, Retirement Planning, Uncategorized, Wealth Accumulation, Wealth Management, Wealth Preservation | Tagged , , , , , , , , , , ,

The Coming Storm: Fundamental Retirement Fairness for Educators

In the world of pension investments, TIAA-CREF is generally acknowledged as the “600 pound gorilla,” at least with regard to universities and other higher education institutions. So I was somewhat surprised when a colleague sent me an article, written by university educators, raising questions about TIAA-CREF and asked me to read it.

if all TIAA-CREF participants were restricted to only TIAA-CREF over a forty-year time horizon, out estimate of the terminal wealth loss is between $700 billion and $4.2 trillion, depending on the mix of investor sophistication level.

access to a set of equity indexes in addition to the TIAA-CREF menu would have increased the value of terminal wealth by more than 100%.

Numbers like that obviously gets an ERISA attorney’s attention. My colleague asked me if I would perform a forensic fiduciary prudence analysis on the 403(b), 457(b) and Optional Retirement Plan (ORP) investment options for a major Southern university, focusing on three of the vendors in such plans: TIAA-CREF, Valic, and Fidelity Investments. The plight of educators with regard to pension options is well documented. Even so, the findings of my forensic fiduciary prudence analysis surprised me.

The ORP is an retirement savings option that has been gaining in popularity on universities and other higher education institutions. Unlike the traditional defined benefit retirement plan, the OPR is a defined contribution plan that theoretically gives educators and other plan participants the option to have greater control over their account, and, hopefully, the opportunity for greater returns.

I focused my forensic fiduciary prudence analysis on the core equity-based investment options for each of the three plans, a total of 86 mutual funds. I did not analyze any variable annuities offered by the three vendors, as the inequitable and high fees charged by such investments basically resulting in such investments being imprudent on their face.

While I performed a comprehensive forensic analysis of the 86 funds, I wanted to focus on one of my proprietary metrics, the Active Management Value Ratio 2.0™ (AMVR), a simple cost/benefit metric, due to its simple nature and easy to understand calculations. I calculated both a simple AMVR and an adjusted AMVR, which factored in a fund’s R-squared rating and the potential impact of a fund’s “closet index” status.

The forensic analysis showed that only 18 of the 86 funds would pass the simple AMVR screen, with only 2 of the 18 being able to pass the adjusted AMVR screen as well. Of the 18 passing the AMVR screen, 4 would have been subject to disqualification based on fiduciary issues such as 12b-1 fees and questionable share classes.

So why do I bother to mention these findings? Because plaintiffs’ attorneys are going to devoting even more attention to the area of pension plans, including 403(b) and 457(b) plans. In 2007 the IRS implemented new rules for 403(b) and 457(b) plans, arguably making more of such plans subjects to the fiduciary requirements of ERISA. Even if such plans are not subject to ERISA, the plans should be subject to potential liability for breach of fiduciary duties under both federal and state common law, particularly under principles of trust and common law.

The issues involving the fundamental fairness of educator-based retirement plans have been well documented. It was not until the LaRue decision in 2008 that the Supreme Court recognized the fundamental difference between defined benefit and defined contribution plans, thus allowing for better protection of employee’s retirement financial security.There is no justifiable reason for  not allowing educators, at all levels, to not have the same rights to protect their retirement financial security by recognizing a similar right to redress similar breaches of fiduciary duties by universities and the investment committees that chose the investment options available within 403(b), 457(b) and ORP plans.

Expect to see the plaintiffs’ bar actively seek to obtain these basic and fundamental investment rights for educators at all levels. Just since last week, when news of my study leaked out, I have received over a dozen request for additional forensic fiduciary prudence analyses on other universities and state university systems.

Posted in ERISA, Fiduciary, Investment Advice, Investment Portfolios, Investor Protection, pension plans, Portfolio Construction, portfolio planning, Retirement, Retirement Plan Participants, Retirement Planning, Wealth Management, Wealth Preservation | Tagged , , , , , , , , , , , , , , , , ,

Insurance Companies and Payments to Beneficiaries

From time to time I find interesting and relevant articles online that I post to various social media sites, except my blog. Makes no sense, since purpose of this blog is to provide meaningful wealth management information to help consumers better protect their financial security.

Therefore, I am going to start posting a mixture of original content articles and material I find on the internet, beginning with this troubling, yet not surprising revelation about insurance companies not paying or trying to pay beneficiaries. Many times I have handled cases where the beneficiary was unaware that they were a beneficiary. In such cases, do insurance companies have the right to keep the money without making any effort to locate the beneficiary? As an attorney, I often hear about cases where former spouse was the actual beneficiary due to the other spouse’s failure to legally change the beneficiary form to name their new spouse. Divorce agreement said that spouse would do so, but never did. Should insurance company benefit from spouse’s failure to act?

http://ifn.insurance-forums.net/life-insurance/sixty-minutes-life-insurers-systematically-dont-pay-unless-beneficiary-comes-forward/?utm_campaign=Sendgrid-Newsletter&utm_source=sendgrid&utm_term=newsletter&utm_medium=email-newsletter#.Vxe1JfOXZjl.linkedin

Posted in Common Sense, Wealth Management, Wealth Preservation, Wealth Recovery | Tagged , ,

Outing “closet index” funds

Canada is finally investigating the issue of recommendations and sales of “closet index” funds. The same problem exists in the U.S., but don’t hold your breath expecting U.S. regulators to address the problem.

A closet index fund is also referred to as an “index hugger” due to tendency of the fund to closely track a market index, just as an index fund does. The difference between an index fund and a closet index fund is that the closet index fund typically charges fees that are often 300% or more higher than the index fund.

Fortunately, investors who are willing to take the time to go online can easily spot an overpriced closet index fund. A metric known as r-squared indicates how closely a fund tracks a relevant market index.

I use morningstar.com to gather my investment data. To get a fund’s r-squared score, click “Funds” tab, look up the fund in the search box at the top of the page, then once the fund appears, then click “Ratings and Risk.” The fund’s three year r-squared rating is under the “MPT Statistics section.

While there is no universally acceptable number for designating a mutual fund as a closet index funds, I use 90 as my r-squared threshold. That means that the closet index fund essentially provides 90 percent of the return of the relevant index, albeit at the inflated price.

Another way of looking at r-squared is to view an r-squared rating of 90 as indicating that the remaining 10 percent of the fund is left to justify the extra, or incremental, cost of the closet index fund. When you consider the recent study by Eugene Fama and Kenneth French that concluded that only the top 3 percent of active managers are able to produce returns that cover their costs, r-squared becomes an even more valuable tool for investors.

Sadly. most 401(k) plans are filled with wealth robbing closet index funds. There is simply no justification for this. Expect to see litigation to address this problem in the near future in order to protect 401(k) participants and their beneficiaries.

 

 

Posted in Asset Protection, ERISA, Fiduciary, Investment Advice, Investment Advisors, Investment Fraud, Investor Protection, pension plans, Portfolio Construction, portfolio planning, Portfolio Planning, Retirement, Retirement Plan Participants, Wealth Management, Wealth Preservation | Tagged , , , , , , , , , , , , , , , ,

More Warnings About Stable Value Funds

Another excellent article highlighting the issues regarding stable value funds and fundamental fairness issues re windfall profits often taken by SVF issuers.

http://www.morningstar.com/advisor/t/67716370/stable-value-funds-a-disclosure-dilemma.htm

Posted in ERISA, Fiduciary, Investment Advice, Investment Advisors, Investment Portfolios, pension plans, Portfolio Construction, portfolio planning, Retirement, Retirement Plan Participants, Uncategorized, Wealth Accumulation, Wealth Management, Wealth Preservation | Tagged , , , , , , ,