401k risk sharing: Are you on the 401k risk island alone?

401k risk 401k risk

The majority of companies are not working with a retirement plan advisor/consult that takes on any 401k risk. While they provide recommendations, the laws that govern 401k plans say that you made the decision. In fact if you Google “fiduciary and broker/dealer” you will find that many of those firms do not allow their brokers to work on retirement plans for fear of being deemed a fiduciary. Some registered investment professionals take liability for their recommendations while some do not. The term for being liable is fiduciary. You doctors and attorneys are fiduciaries. If you could have a fiduciary adviser for the price of one that’s a non-fiduciary why wouldn’t you take it?

But what about the recordkeeper? Don’t some offer warranty’s? The overwhelming majority of recordkeepers, the company you outsource the majority of administrative functions, simply take direction from you. In the fine print, you will find that the protection you may have assumed isn’t there. The Department of Labor’s latest press release on QDIA’s discussed next will explain.

401k Risk Safe Harbors with Strings

Are you aware that by choosing a qualified default investment alternatives (QDIA) you have not completely reduced the risk? That is because it is your responsibility to scrutinize your choice of a qualified default investment alternative against available choices not just at the time you selected your provider but on an ongoing basis. Google “EBSA qualified default investment alternatives February 2013” to get their news release. The last sentence says “Plan fiduciaries should document the selection and review process, including how they reached decisions about individual investment options.”

401k Risk Transferred to an ERISA 3 (38) Investment Manager

Wouldn’t it be simpler to choose a portfolio manager that actually takes on the risk of their qualified default investment alternatives and you just need to oversee them. Moreover, why wouldn’t you hire an advisor that will work for your benefit, taking on liability, to help you oversee the investment manager that takes the specific liability for the investments? I call that increasing your risk adjusted results. Many results look good until the light of risk shines down.

Get Your 401k Risk Assessed with a 401k Review

Waiting until you have a stroke is not the best time to go to a doctor. When you go see a general practitioner they check your blood pressure, temperature and resting heart rate (at least mine does). Then they ask “why you are here today?” The process is a risk reduction measure in case you walk out of their office for some obvious issue that they will be accused of not uncovering. Stokes are known as a silent killers because they typically go undetected unless someone does a diagnostic or the patient has a stroke. As a benefactor of high blood pressure medication, I am glad that my issue was discovered during a routine diagnostic.

You can use Envision 401k Architects or another independent, investment advisor representative willing to share in your liability to help diagnose your 401k risk. While you cannot completely rid yourself of all 401k risk, it makes no sense to take on unnecessary 401k risks.

Please email us if you are interested in being invited to one of our presentations on managing your risk.

(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. (2) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. (3) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IN, IL, MI



About Envision Wealth Planning

I empower smart people to make smarter money choices that honor their personal values. After working together to develop a holistic plan, I help clients navigate the emotions and self-expression that can derail financial wellness. I use Financial Life Planning as a tool to propel client’s values, goals, and passions forward. I help clients figure out strategies to fund and maintain a sustainable retirement, plan for funding college, manage student loan debt, balance current lifestyle with savings goals, assist with financial planning during a divorce, and align values with your investments. I have an MBA from MIT Sloan. My financial designations include Certified Financial Planner (CFP®), Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst® and College Funding and Student Loan Advisor.
This entry was posted in 401k Review, 401k Risk, Employer sponsored retirement plan risk, ERISA 3(38) Investment Manager, Fiduciary duties, Investment selection. Bookmark the permalink.

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