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How to Fill in the 401(k) Results Gap

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I prospect for clients in the individual-company 401(k) investment advice business. I don’t have fancy PowerPoint presentations or glossy brochures. I don’t even have a business card. I build my entire prospect presentation by using a company’s 401(k) retirement-plan menu. Before I meet with the prospective client, I need two pieces of information:

One, a copy of the complete company 401(k) retirement-plan default menu of mutual funds is a must. 

This information can be accessed by getting the login user name and password for the company 401(k) retirement-plan provider website from the prospect.

Second, a copy of the prospect’s most recent company 401(k) retirement-plan account statement is required. 

This information should be available on the company 401(k) retirement plan provider website. (You may have to request login assistance or get a statement from the prospect.)

My prospect presentation is built around the investment performance gap: This gap is calculated by measuring the difference in investment performance between two groups of company 401(k) retirement-plan mutual funds.

The first group is the default company 401(k) retirement-plan mutual fund menu options. The second group includes the mutual fund options that the prospect currently owns on that default company 401(k) retirement plan menu.

Fund Focus

Licensed investment advisors know there are only a handful of good mutual fund options on any default company 401(k) advice menu. But that is new information to individual company 401(k) retirement-plan participants.

Most individual company 401(k) retirement-plan participants I meet with do not own any of the best mutual fund options available to them.

Buy-and-hold, asset allocation, diversification, target term, life cycle, and auto enrollment continue to fascinate investment professionals. Individual company 401(k) retirement-plan participants don’t have the time, expertise or the inclination to take advantage of these tools.

This means that many individual company 401(k) retirement plan participants own the wrong asset classes, and they own the wrong mutual funds. That translates into investment performance lost over the last stock market cycle.

I calculate the dollar value of that lost investment performance and show the prospect how much money has been lost by owning the wrong mutual funds on the company 401(k) retirement-plan menu.

The investment performance has been there over the last five-plus years of the recent stock market advance. Too many individual company 401(k) retirement plan participants have failed to capture the robust investment performance that was available to them.

As a result, there’s has been tens of thousands of dollars of company 401(k) retirement-plan account investment performance left on the table over the past few years. My prospect presentation makes the individual company 401(k) retirement plan-participant aware of the exact dollar amount.

Pays for Itself

The dollar value of this lost investment performance pays for my annual company 401(k) retirement-plan advisory fees many times over, and – of course – my prospect presentation highlights these exact figures and how they were calculated. 

Prospective individual company 401(k) investment advisory clients always will buy and hold mutual funds on their company 401(k) retirement plan menu. I show them which mutual funds are best to buy and hold. It costs a great deal of money to buy and hold the wrong mutual funds. My prospect presentation calculates how much money it really costs.

The strategy really is no more complicated than what I have outlined here. And this type of prospect presentation works.

It points to how easy it is for an advisor to expand his or her investment advisory practice to include individual company 401(k) retirement-plan investment advice.

What’s stopping you?