Last week, I was interviewed by a top law firm consulting group. The firm was interested in my over 21 years of experience providing retirement plan investment advice to legal professional clients.
The dialogue of the interview reminded me of a common concern voiced by many individual 401(k) retirement plan participants. This concern centers around the practical need of hiring an independent, third-party investment advisor.
The question often asked is, “Can an investment advisor really improve my long-term company 401(k) retirement plan investment management decisions?”
I opened my first individual company 401(k) investment advisory relationship in the summer of 1999. Since then, I have learned the most important elements to consider in the event you are interested in hiring a 401(k) account advisor.
1. Always Hire an 401(k) Advisor Who Is a Fiduciary
This element should be common sense for most individual investors, but isn’t. My experience has taught me this extremely important invest advice element is not so common.
A fiduciary investment advisor is legally and ethically bound to act in the best interest of his or her clients. The legal requirement of a fiduciary level of investment advice responsibility ensures there is no conflict of interest regarding the selection and management of the mutual fund options on your company 401(k) retirement plan menu.
You don’t need mutual fund product advice for your company 410(k). Your mutual funds have already been chosen and provided. You need asset class and mutual fund selection advice. The main question you need answered is, “what do I buy” on your company 401(k) mutual fund menu.
2. Don’t Choose an Advisor with a Part-Time 401(k) Advice Specialty
Due to my years of experience in the individual 401(k) advice niche, I have been approached by investment professionals from around the United States who “want to get into the 401(k) advice business.”
This fact reminds me of the old joke about Willie Sutton, one of the most famous bank robbers in U.S. history. The legend goes that at his trial, the presiding judge asked Willie why he robbed banks.
Willie was reported to have replied, “Because that’s where the money is.”
In most cases, the largest stock and bond market investment found in an individual or couple household is the 401(k) account. That fact has attracted many investment advisors to develop a strategy to “advise” those assets.
If you have an existing investment advisor, he or she will always offer to provide investment advice on your household company 401(k) accounts just to maintain their existing relationship with you.
Your retirement savings deserve more than a five-minute review once or twice a year by someone who has no legal responsibility for their investment advice. Ask questions and look for past track records.
3. Pick an 401(k) Advisor with a Stop Loss Strategy
The last few years of stock market returns have reminded me of the old Wall Street adage that a monkey with a dartboard could have picked any mutual funds to own on a company 401(k) account menu. They have all gone up in value over the last few years.
The popular “buy-and-hope” company 401(k) account investment management strategy over the last few years has worked out well. That is exactly my point. How much longer is the stock market advance going to last?
Your 2020 year-end company 401(k) account quarterly statement most likely provided you with an all-time high level of retirement savings. Congratulations to you.
What are you doing now to put in place an investment management strategy to preserve those stock and bond markets gain in the future?
Ask this same question to any investment advisor who tells you he or she is qualified to provide investment advice on your company 401(k) account.
Ric Lager
Lager & Company, Inc.
