Mutual Fund Laggards and the 401(k) Plan Advice Opportunity

You don’t have to look very hard to find a company 401(k) retirement plan participants frustrated with their menu of default mutual fund options. Individual company 401(k) retirement plan participants that I meet with are beyond frustrated. They have given up paying even the least bit of attention to their company 401(k) retirement plan account.

Buy-and-hold and hope-for-the-best strategies are the most common company investment-management approaches to 401(k) retirement plans. Individual company 401(k) retirement plan participants don’t know what to own. They don’t know when to sell.  They are in desperate need of investment advice from an advisor who they know and trust—like you.

Your existing client relationships offer a vast opportunity to manage more of your client’s assets.  Expand those relationships to include an independent, third-party analysis of their company 401(k) retirement plan.

Lagging mutual funds are the worst kind of theft of company 401(k) retirement plan assets. The U.S. stock market provided great investment returns in 2013. Your clients can’t afford to own retirement plan mutual funds that went up 4% last year. My grandfather used to say, “You have to make hay while the sun is shining.” The same goes for investment performance in a company 401(k) retirement plan account.

Ask your best clients for a copy of their company 401(k) retirement plan menu.  Compare that menu to their existing company 401(k) retirement plan holdings. Find the laggard mutual funds. Suggest that clients sell them and replace them with better-performing mutual funds. Then manage the client’s company 401(k) retirement plan account based on their risk tolerance.  

The biggest obstacle is the mutual fund company that administers the company 401(k) retirement plan. Their own family of mutual funds dominates the default company retirement plan menu. They are going to be very reluctant to remove their mutual funds due to underperformance.

Don’t fight this battle with the company 401(k) retirement plan provider. Don’t expect your client to fight it either. It is your job as an investment advisor to rid your client’s company 401(k) retirement plan account of bad mutual funds.

Provide your best client with an independent ranking of the investment performance of their default company 401(k) retirement plan menu. There is no other source of this information for your clients. Why not provide it yourself? This is client marketing 101.

You can use  Morningstar, Zacks, Kiplinger or Lipper research.  I have used Dorsey Wright for many years. Any independent analysis that you provide will be better than your client’s blind inattention to their company 401(k) retirement plan account.

Your experience and analytical skills can make all the difference in your client’s early retirement with plenty of money to fund their lifestyle. Without it they risk having to work several more years in order to have a marginal retirement life. Ask for a copy of the default company 401(k) retirement plan menu of your best clients.  Analyze, reconstruct, and advise.  Provide your client’s with another reason to never leave your investment advisory relationship.

One more thing.  You know that executive who works at the same company as your best client? The one that you have been dying for your client to introduce you to all these years?

Call that executive on the phone or send an e-mail. Offer him or her free analysis of their company 401(k) retirement plan menu.   

I like free stuff. I am willing to bet that the prospect does too.  This prospect struggles with the same company 401(k) investment management decisions that you just solved for your client.  

Don’t continue to wait for your client’s referral.  Go out and open this new investment advice relationship on your own

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