PBS’s Frontline recently released a documentary describing the current state of retirement in the United States as nothing more than a gamble. The piece went on to explore how average Americans are struggling to save enough in order to fund a secure retirement. According to Frontline, the primary reasons are:
- Wall Street’s greed in charging excessive, hidden fees.
- The inability of stock pickers and market timers to outperform passive investments.
- Lack of a uniform standard requiring all “advisors” to put the client’s interests ahead of their own.
In our experience working with enterprising small businesses, we know that their retirement plans are indeed greatly impacted by what PBS has presented. If you are a small business owner, you most likely carry a strong sense of loyalty and dedication to your employees; you truly care about their wellbeing. After all, your business probably operates much like a family. It’s also no surprise that you want to support yourself and the people who have helped make your business successful by offering a retirement plan.
On the other hand, you are undoubtedly very busy operating and growing your business … wearing a multitude of hats all at once with little time to dedicate toward reviewing the merits of one 401(k) plan versus another.
Being business owners ourselves at Sensenig Capital, we know the feeling. It’s just another thing to get off your desk. Unfortunately, this type of scenario has allowed the big Wall Street firms to “sell” retirement plans containing hidden fees that are littered with poor investment options and directed by an “advisor” who is not always operating in the client’s best interest. These are the things that have a direct negative impact on your employees’ ability to be successful in saving for their own retirement; it’s the reason PBS is calling retirement in America a gamble. They are also things that you as the business owner and plan sponsor are legally obligated to protect against. So, how might this affect you, and what can you do about it?
Let’s say you currently offer a 401(k) plan that was sold as “not costing the company anything.” While this may be true—there may be no direct cost to the company—there is most likely a significant cost to the employee enrolled in the plan. In addition, do your employees know whether or not they are on track for a successful retirement, and do they have the opportunity to speak individually with an independent advisor on a regular basis to discuss these matters?
In another scenario, perhaps your existing plan offers a menu of investment options to select from in building a portfolio … but very little ongoing expert advice to go along with it. On top of your busy schedule, and that of your employees, you now have the responsibility of being your own investment advisor. Unless you possess the know-how and appropriate research capabilities, how will you decide which investments will best suit your own unique situation? Instead of a list of mutual funds, wouldn’t it be easier if the firm you work with—the people who are the investment experts—built and managed the portfolios for you?
If you are asking yourself the same questions, perhaps it’s time to look under the hood and kick the tires a bit. An independent advisory firm, like Sensenig Capital Advisors, can help you take the first step by conducting a thorough benchmarking of your existing plan, at no obligation. This exercise reviews important measures such as fees, plan design, participant success, and mutual fund offerings … the very measures that can determine the success or failure of retirement readiness. We oftentimes see this to be an enlightening experience for a business owner when they realize how little value is being garnered in relation to the fee being paid.
Small businesses are the engine of our economy, and the hard-working Americans that make them run deserve better. The solution is simple.
As a business owner, if you find yourself reading this article and beginning to contemplate the effectiveness of your existing 401(k) plan, then go ahead and take the small step to seek out the involvement of a fee-only, independent Registered Investment Advisor who is legally bound by a fiduciary standard of care to act solely in your best interest. This type of advisor can serve your employees well by continually guiding them with expert advice. In addition, we can offer professionally managed investment portfolios, helping to reduce much of the decision making burden your employees face when trying to pick the most appropriate mutual funds. Lastly, an independent firm can regularly assist you in upholding your fiduciary obligation to the plan. Everyone wins.
We may find that the battle for retirement security is no longer just a gamble. The future retirement of a whole generation may depend on it. As the proverb below reminds us, small things can have huge consequences …
For Want of a Nail
For want of a nail the shoe was lost;
For want of a shoe the horse was lost;
For want of a horse the battle was lost;
For failure of the battle the kingdom was lost –
All for the want of a horse-shoe nail.