Fiduciary

Being a Retirement Plan Fiduciary is Really, Really Easy if you IEJ

IEJ.  Identify, Explain, Justify.  Just what this industry needs, another acronym!  This is our code for the simple exercise you can do to be a smart retirement plan fiduciary.  If you can identify, explain, and justify the decisions you make on your plan and the costs that you pay, then we think it is easy to be a good, smart fiduciary.  Maybe not really, really easy, but we wanted to get your attention.

Of course, running a retirement plan is a serious and important responsibility.  The most obvious reason for this is that it has to do with your employees’ money and their future – which, ya know, is kind of important to them!  You certainly don’t control the decisions they make, how much they spend, how much they save, and their other life choices that impact their future.  But you do control the type of plan they can save and invest in and the quality of the guidance and advisement they receive. This is a big deal – it matters and will have an impact on their life!

In addition, there is the whole Department of Labor and ERISA and IRS stuff as well – regulations and compliance – the legal issues.  You would usually see the words, risk, liability, etc… associated with this.  So doing the right thing for your employees is not just good for them, but it will also cover your…

For example, let’s say that you have been working with a specific broker, or advisor, for more than 10 years and have never considered alternatives.  Would you be able to justify that?  Maybe, maybe not. On the other hand , if you have a documented review process that explains and justifies why you continue to work with the same broker, then you are probably fine.  Or let’s say that you want to offer your employees a Managed Investment Program inside your retirement plan (we’re not big fans of those, but they are common in the industry and can help some people better invest their assets).  Are you able to explain how you picked the program, what it’s cost is, and why you are offering it – how do your employees’ benefit from it?

So when you think of your decisions that you have made on your plan, and the costs that you are paying, ask yourself if you can identify, explain, and justify them. If you can (and it helps to document this), then you are probably in good shape!

Mutual Funds

Do You Want the Best Funds?

I want the best funds!  Who doesn’t?  Do you?  Of course you do.  Aren’t there funds out there that really are the best funds?  The ones that will protect your investments when things aren’t going well but take full advantage of the market rallies as well. Funds that have the really, really smart people that run them.  The people that are smarter, and more brilliant, than your normal smart people.  People with unique, innovative strategies, that can identify performance and trends and momentum and growth before they are identifiable.  People that have a system for picking stocks or bonds that other investors haven’t figured out yet.  If so, shouldn’t you invest in those funds??!!

If you want those funds, there are advisors who, for a “small” fee, can get them for you.   You see, to pick the best funds, they have developed their own unique, highly sophisticated, proprietary systems that you could never understand.   These systems might involve algorithms, probing interviews with fund managers, deep statistical analysis, and calculus beyond your comprehension.  But just in case the awesome funds that they have picked out for you using their secret, valuable techniques don’t quite work, don’t worry.  Relax – they have got you protected with their watch list. With their watch list, you can go ahead and live your life because they are watching your funds.  If any of the funds they are recommending slips up, well then, they will just go get new, better funds!

This is what some advisors do – one way they bring value – how they “enhance” your wealth (their’s too, of course).  They are watching the people that watch your stocks and bonds so they can get the best ones for you.  Come to think of it, shouldn’t there be another layer of advisors that watch the advisors that are watching managers?  Hmmm.  Wouldn’t that make sense?  What a great marketing idea for financial firms service for investors.

On the other hand, you could simply use low-cost index funds, set-up a simple well-diversified portfolio and not hassle with all of this.  But maybe you really don’t like your money and would rather just give it away.  Or maybe you feel like you are going to have so much in your retirement that it is ok to let the the financial services industry have it.  Or maybe you just feel like the financial services industry is a good place to donate your money, instead of your church or favorite cause.

1 Dollar

“If You Can: How Millenials Can Get Rich Slowly” by Bill Bernstein

This “book,” if you can call it that, has gotten attention from some corners of the financial services industry.  While you may not be familiar with Bill Bernstein, his work has influenced many investors. Most advisors and brokers would say in a bad way, but I believe in a very positive way.

Written for millenials, many of the themes apply to people of all ages.  Two things that struck me about the book.  First, his recommendation that you only need to invest in 3 funds.  Fantastic!!  Put 1/3 of your money in a total us stock market fund, 1/3 in a total international stock market fund, and 1/3 in a total bond market fund. Awesome.  I agree completely.  It really is that simple.  Do this and in the long run you will be better off than the vast majority of investors.

Second was his advice to avoid almost all “finance professionals.”  I couldn’t agree more – and I suppose I would be considered a “finance professional.”   I need to come up with another way to describe the work I do…

Anyway, the book is a whopping $.99 on Amazon.  If you have a dollar and 15 minutes, it is an excellent investment!