The following scenario is real. The names have been changed because I am not very good at remembering names any longer. And there are too many names to remember.
In a cold e-mail or telephone call, I approach several individual company 401(k) retirement plan participants over the course of a calendar month. Due to the nature of these approaches, the knee jerk reaction is often, “I already have an investment advisor who does that.”
The “does that” comment is made intending to inform me that the individual investor’s existing investment advice relationship includes an independent, third-party, fiduciary level analysis of his or her company default 401(k) mutual fund menu.
Over the years, I have learned the following response from me works best. “Do you pay your current investment advisor for your company 401(k) investment advice?”
Never, not one time is my 22 years of prospecting individual company 401(k) retirement plan participants has any prospect confirmed to me a fee for investment advice relationship that includes his or her 401(k) account.
If your first response would be the same, you are in denial as well. The truth is, there is no such thing as a “does that” 401(k) investment advice relationship.
The investment advisor who states he or she is also “watching your company 401(k)” is doing you a huge disservice. I would argue this condition is a breach of fiduciary responsibility; but that may be a topic for another blog post.
Your company 401(k) account deserves better. Don’t allow your investment advisor to provide a “loss-leader” 401(k) advice option in order to maintain your current investment advice relationship.
Do you work for free? Do you give away the years of knowledge and experience you have built during your working career away for nothing?
Time for an old Wall Street adage. “What is the value of free advice?”
Your doctor is not free. And neither is your car maintenance and repair. If you get free legal services, I demand to know the name of your attorney.
The preservation and growth of your company 401(k) retirement plan account is a valuable investment advisory service. This service can easily become the foundation of an investment advice relationship.
If you can find an experienced investment advisor who can demonstrate consistent value in the selection of the mutual funds on your company 401(k) menu, they should be compensated.
If you are not paying your current investment advisory to provide a fiduciary level of investment advice on your company 401(k) menu, how much time do you think he or she is really watching what is going on?
This dangerous type of investment advice relationship gets even worse. When the “free 401(k) advice” advisor makes a recommendation regarding the purchase or sale of a company 401(k) mutual fund, are you going to follow it in a timely manner?
If you are not currently paying for a detailed and specific investment management strategy for your company 401(k) mutual fund menu, neither you or your investment advisor has any skin in the game.
This kind of company 401(k) investment advice relationship is doomed to fail. Especially if the free 401(k) investment advice is a “add on” to an existing outside investment advice relationship.
Don’t allow the next great stock market decline or rise in interest rates to teach you a very expensive lesson. Your “free 401(k) investment advisor” will be embarrassed. But you are the one who will lose a meaningful amount of the last several years of stock and bond market gains along with personal and company-matching 401(k) contributions.
Ric Lager
Lager & Company, Inc.
