I prospect for 401(k) advice relationships each week, which includes cold telephone calls and e-mails. I am logged on to LinkedIn at all times of the day. By far, the most popular response to my prospecting efforts is the following: “I already have a broker. He/she watches my 401(k) too.”
Please allow me to take this opportunity to call out the foolishness of that response.
Let us start with the rules. Registered Investment Advisors (RIAs) are bound by the Securities and Exchange Commission, which includes a fiduciary standard of investment advice in the best interest of the client. Fiduciary 401(k) investment advice has no financial products to sell. The advice is not associated with a 401(k) sponsor (your company) or a 401(k) provider (Schwab, Fidelity, Vanguard, etc).
I am sure the broker who is “watching” your 401(k) is honorable, but be aware of the following conditions: It is likely your broker is not compensated to “watch” your 401(k). He or she is offering to watch your 401(k) to maintain your brokerage account relationship. Broker dealers have strict regulations on client assets “held away.” 401(k) accounts are “held away” client assets, which are not in custody at the broker dealer, with no broker dealer supervision.
Consider this question: When was the last time you had a conversation with your broker about your 401(k) mutual funds?
Here is an even more direct question: Because there’s no advisory fee compensation or broker dealer supervision, what is the incentive for your broker? After all, how much time do you spend each business day “watching” something you do not get compensated for? I am guessing the answer is none.
In the 401(k) advice niche, no investment advisor can function as both advisor and broker. The fiduciary standard sets one apart from the other. The annual compensation for the advice is an even more important distinction.
Do not remain in the dark. A fiduciary level of 401(k) advice cannot be “free.” Upon retirement, the end result does not have to lead to a “401(k) rollover” to an IRA. The potential for a 401k) rollover is another reason your broker may be “watching” your 401(k) for free now, but I digress.
401(k) accounts have been a huge source of stress and anxiety over the last few years. First, the safety of the principal. Second, the age-old investment management question of what to buy. Here is my simple idea: Add an independent, third-party, fiduciary-level investment advisor to your investment management team. The specialization in the business world today is real, and high level skill does not transfer between professionals these days. No one person is an expert in all areas of their business and personal life.
A good lawyer, a capable tax advisor, and an insurance professional are all key members of your financial management team. An experienced 401(k) advisor should be part of that same team.
Outside of your home, what is the largest financial asset you own? In most American households, the answer to that question is your company 401(k) account. That is certainly true in dual working adult households. If you are not especially gifted with investment management knowledge, take heart. You do not have to know everything. There are professional investment advisors who do know.
These independent investment professionals can answer your 401(k) “what to buy” questions. More important now may be the answer to “when to sell.” You do not have to take the time away from your family or career to solve your 401(k) investment management problem. The answer is already there.
Have a conversation with a 401(k) investment advice expert. Get a second opinion on your current 401(k) mutual funds from a knowledgeable, experienced, and trustworthy 401(k) advice professional. We live in an age of specialization. There is no reason on earth to continue to ride the 401(k) roller coaster up, and back down, every few years. Your 401(k) account deserves better, and so do you.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.