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Fees, 401(k) plans and cheap T-shirts

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The dream of every journalist is to score the big interview. Now, big is a very subjective word. There are some who would say my 4-part series with Frontline Producer Martin Smith was the big interview of the year. For me, though, the dream interview was Phyllis C. Borzi, assistant secretary of Labor of the Employee Benefits Security Administration (EBSA). She is, after all, the general leading the charge for a fiduciary standard that all the king’s horses and all the king’s men seem to be fighting against. Martin Smith, by comparison, is a mere observer, a beneficiary of the events around him. In “Star Trek” terms, Martin Smith is to Chris Pine what Phyllis Borzi is to William Shatner. (Note to self, you’ve engaged or otherwise met the first three, now go after the fourth.) 

I didn’t know what to expect when the DOL public affairs person said yes when I asked to interview Borzi. I also didn’t know what to expect when I actually interviewed her. Finally, I didn’t know what to expect of the readers when they finally read the interview. Would they think it too structured? Too kind? Ground-breaking? News-worthy? (You be the judge and read it here.)

Here’s what I came away with: 

She has a very strong background in the subject matter. When I referenced key research studies that have been underplayed in the general media (primarily because they bluntly defuse the argument of those who oppose protecting the rights of individual investors), she readily recognized these academic pieces. Not only that, but, like Tamar Frankel, she is well studied on the history of ERISA and the changes in the financial services profession since 1975. Indeed, when she mentions investor decision making is much more rigorous today versus 40 years ago, Borzi’s breadth of knowledge gives the aura of being just as professorial as Professor Frankel’s. 

Equally strong is Borzi’s philosophical underpinnings. She matter-of-factly said, “Assuming that all things are equal, I think the average person would prefer to work with people who are legally required to provide unbiased investment advice and put the client’s interests first.” There’s no sugar coating. There’s no mention of protecting business models. She focuses exclusively on the best interests of the investor. If you’re an individual investor, isn’t that what you’d want your regulator to focus on? 

What surprised me the most, though, was the brilliance of her “cheap T-shirt” metaphor when describing fees. I’ll let you read the full text in the original article, but the gist of it is this: People often buy cheap T-shirts because all they need is something that’ll last a few years. But if they’re looking for something to last a lifetime, then price becomes less important than other factors. 

Related story: DOL fiduciary plan hits delay

Folks, 401(k) plans are meant to last a lifetime. Sure, fees are important, but they aren’t the only thing. High fees shouldn’t be ignored, they should be considered a clarion to heed. They may be a symptom of something bad (like conflicts-of-interest). On the other hand, they may be an indicator of durability, and that’s an important trait for something you expect to last a lifetime. 

Come to think of it, low fees shouldn’t be ignored, either. They might, as many imply, be an indicator the plan is receiving adequate services at a low cost. Conversely, they may be a warning that the plan is not receiving the kind of service it needs to last a lifetime. 

And that’s important. 

A 401(k) plan is not a cheap T-shirt. You expect to wear it all your life.