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401(k) Balances Are Up, but Is Your Retirement Plan Business?

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All is not well in your best client’s 401(k) accounts  

There is not enough time in the day for most individual investors to careful watch their company 401(k) retirement-plan accounts. Even if they found the time, I often wonder how many individuals would take the time to act in their best interest to improve their annual investment returns.

Who can blame individual company 401(k) retirement-plan participants?

Their quarterly statements go up every quarter. The accumulation of individual contributions and company-matching contributions combine to make the world a happy place by the end of the calendar 2017 year.

There is no need to be concerned about the lack of a logical, disciplined, and organized investment management strategy when buy-and-hope or set-it-and-forget-it has worked so well for so long.

Just Ignore It?

Individual investors are not completely to blame. Their lack of awareness is part of the “do-it-yourself” company 401(k) retirement-plan investor culture.

Target date mutual funds have taken over most company 401(k) retirement-plan account default menus. Those mutual fund choices are promoted to individual investors as investment options that don’t really need their attention.

Individual investors don’t realize that they currently suffer from a very expensive company 401(k) retirement-plan investment management problem. It is up to the investment advisor to calculate how much money the problem is costing their best clients.

Call it problem-solving or problem identification. Either phrase applies here.

Your challenge now is to learn how bring to your client’s attention the dollar cost of their company 401(k) retirement-plan investment management problem. 

What to Do

Your individual company 401(k) retirement-plan client needs an independent, third-party, unbiased analysis of their investment management strategy.

Far too many individual company 401(k) retirement-plan participants have no knowledge of mutual fund asset classes. Consequently, they own the wrong mutual funds in their retirement-plan accounts. And they have far too much money currently invested in expensive and poor-performing mutual funds.

The core of my qualifications presentation to an individual company 401(k) plan participant is the identification of this issue: Poor mutual fund choices cost real dollars. The identification of these investment management problems has helped me turn interested prospects into company 401(k) investment advice clients.

I compare a client’s current company 401(k) retirement-plan mutual fund holdings to the other mutual fund options available to them. I then calculate the amount of company 401(k) retirement-plan growth that an individual company retirement-plan participant has “left on the table” over the last few years.

The investment-performance comparison is between the mutual funds currently owned and the mutual fund choices available on the company 401(k) default menu.

Got Gap?

Many times, the investment-performance gap between these two groups of mutual funds runs into the hundreds of thousands of dollars over the last few years.

“Mr./Ms. Prospect, would you and your spouse have a different level of confidence in your retirement-planning if you had $175,000 more now in your company 401(k)”

Individual company 401(k) retirement-plan balances are up over the most recent stock and bond market cycle.

The sad fact is that most individual company 401(k) retirement-plan participants have failed to capture the largest part of the investment performance from record low interest rates and record high stock index prices.

Regardless of the number of mutual fund options on a company 401(k) default menu, there are always less than a handful of mutual funds that are working well at any time. Lately, index mutual funds have taken the prize as the least-expensive and best-performing mutual funds in most company 401(k) retirement-plan menus.

Individual company 401(k) investment advice clients remain unaware of how much of an investment-performance gap exists between the mutual funds they currently own and the other mutual fund options available to them.

Individual company 401(k) investors have been lulled to sleep by target date mutual funds and new money contributions mistaken for principal growth. It’s time for you to wake up your best clients and to expand your investment advisory relationship.

Time to Act

Today, your analysis and investment management sophistication is sorely needed in the individual company 401(k) retirement-plan account management.

Investment advisors should analyze their clients company 401(k) retirement-plan mutual fund menu in order identify the best mutual fund options available. It costs your client too much precious company 401(k) retirement-plan growth to settle for “good enough” mutual fund choices.

Before year-end, ask your client for a copy of his or her default company 401(k) retirement-plan menu and most recent quarterly statement. The calculation of how much money your client does not have, and should have rightly earned, in the last few years will shock you.

Investment advisors need to play a much larger role in the investment management decisions that their clients make with their individual company 401(k) retirement-plan accounts. It is time to expand your role in your client’s financial lives to include company 401(k) retirement-plan investment advice.

This calculation of the investment-performance gap might even convince you to add an individual company 401(k) investment-advice niche to your existing practice. Goodness knows your clients could use your help.


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