There is a situation going on in many company 401(k) retirement plans today that has reminded me of saying that my Grandfather taught me many, many years ago.
When he saw a situation that was a clear conflict of interest he would say, “That is like the fox guarding the hen house.”
According to what I found on Google, this phrase goes all the way back to the late 1500’s. The fox guarding the hen house describes a set of circumstances in which someone who should not be trusted has been chosen to protect someone’s best interests.
More and more company 401(k) retirement plan providers are offering various levels of investment advice products to individual company 401(k) retirement plan participants.
I smell chickens. I see the fox.
Company 401(k) retirement plan providers (Schwab, Fidelity, Vanguard, etc.) are profit-driven companies. All of these companies have added an individual company 401(k) retirement plan participant investment advice model in order to improve their profit margins.
Have you ever wondered why there are so many mutual funds on your company 401(k) retirement plan menu that are offered by your same company 401(k) provider?
If the company 401(k) investment advice provider is also your company 401(k) retirement plan provider, which mutual funds do you think they will advise you to buy-and-hold?
This situation is a huge conflict of interest. Any source of investment advice on your company 401(k) retirement plan account needs to come from an ERISA fiduciary. A fiduciary is an independent, third-party, unbiased source who has nothing to do with your company 401(k) retirement plan.
In fact, a fiduciary has your best interest in mind at all times. A fiduciary does not have any investment advice or mutual funds to “sell” you.
Any investment advice that increases the annual compensation of your company 401(k) retirement plan provider is not in the company 401(k) retirement plan participant’s best interest.
I have been an investment advisor for over 35 years. I have provided investment advice to individual company 401(k) retirement plan participants since 1999. Some things have never changed during that time.
Company 401(k) retirement plan providers have seen a huge compression on their annual fees in the last few years. Lawsuits have a tendency to do that sort of thing. These companies are making up for lost revenues on one side of their business by adding an investment advice product on the other side of their business.
Don’t take investment advice from any affiliate party who has a clear conflict of interest. Especially in your company 401(k) retirement plan account.
Ric Lager
Lager & Company, Inc.
