We are proud and excited to announce that we have expanded into the Minneapolis/St. Paul market, serving the great state of Minnesota. We look forward to serving the area with our unique, 1-on-1 401k participant advice solutions. The expansion was made final by the Vikings securing a stadium for the next 2+ decades. (joking)
If you have any questions, please contact us at (612) 265-9862.
Over the past few years, I have become a big fan of whiteboard illustrations that simplify concepts which can be challenging to understand. The video below by HighTower Whiteboard Animation does a great job of simplifying the confusion over the difference between brokers and a fiduciary in a nice little analogy.
Can’t view? Click here to view on YouTube
Today the IRS posted the 2012 retirement plan limits, and for the first time since 2009, they are increasing! The new limits are as follows:
Going back to the early 2000′s, our friends at Dalbar have been conducting a study to determine whether investors’ investment decisions impacts their investment performance. Unfortunately, it does. In a BIG way. As with every year’s study so far, the results illustrate a big difference in what the S&P 500 gained versus the average equity mutual fund investor. The results of the twenty year numbers ending 12/31/10:
S&P 500 – 9.14%
Average Equity Mutual Fund Investor – 3.27%
The problem is, the 5.87% ‘behavior gap’ is actually an improvement over many years’ results. Additionally, now that many people have gone through the “Dot Com” and “Mortgage Crisis” bubbles, people are learning to avoid some of the behaviors that result from the greed and fear we experienced during those periods. In reality though, we see these harmful behaviors more often than not when working with investors. If we simply remember that human nature can often tell us to do the wrong thing at the wrong time, we can help ourselves and our portfolios.
Download the Free Version of the Study
I believe in trusting my instincts when making decisions. However, when it comes to investment decisions, I have learned firsthand that my gut will often lead me down the wrong path. Many studies and surveys continue to support I am not the only one in that camp. Recently, Scott Bosworth, VP at Dimensional Fund Advisors Ltd., spoke at the National Association of Personal Financial Advisors conference on the topic of behavioral-finance research to explain some of the mistakes investors make when they ignore asset allocation, otherwise stated as their personal investment recipe.
A whole range of biases color investor thinking, Mr. Bosworth said. Investors become overconfident, think they have more control than they really do, and give themselves way too much credit when things go well and too little of the blame when things go wrong.
“Every study says we are overconfident in a lot of things,” said Mr. Bosworth. “It drives innovation and progress.” But when it comes to investing, relying on investment hunches and beliefs can be deadly, he said. “We find reasons, even if mounting evidence says we are wrong.”
Mr. Bosworth said there is a link between behavioral finance theories and the efficient-markets theory that underlies passive investment and asset allocation models. Financial advisers need to have an understanding of both disciplines in order to handle their customers’ concerns while sticking to the straight and narrow path of passive investing in an appropriate mix of index funds.
“Behavioral finance, how you deal with the client, is more important,” Mr. Bosworth said. “If you can solve that part, help them understand risk and return, and keep them diversified, you have won the biggest part of it.”
Read the Entire Article at InvestmentNews.com (free registration required)
A survey conducted by the Boston Consulting Group found that investors find retirement planning is confusing and 89% want help creating their ‘investment recipe’ (aka asset allocation). Here are the other findings of the 2,600 investors surveyed:
“Most Americans are busy with their jobs, their families and their personal pursuits, and say that they don’t have the time or interest to become experts in retirement planning,” said Lynne Ford, CEO of ING Individual Retirement. “The results from our study were clear: Americans want a roadmap to help them navigate to and through retirement.”
Ford added: “As a whole, consumers highly value choice, yet too much can be overwhelming. Consumers also value the control to make their own retirement-planning decisions but want detailed instructions on how to accomplish their financial objectives.”
Fred Reish (he’s getting a lot of attention from us this month) and Bruce Ashton of Drinker Biddle posted an article that discussed having 401k statements illustrate a participant’s account balance in the form of a monthly income. The article is illustrated below and we find this to be an excellent idea, but the following points would need to be considered in order create a consistent message across providers:
Here is the article by Reish and Ashton:
401(k) participants receive quarterly statements of their account balances. Surveys by providers and others generally report on 401(k) account balances in terms of averages, averages by age group, and so on. In other words, it is common in almost all reporting and any conversation about 401(k) plans to refer to “account balances.”But, the 401(k) industry—plan sponsors, participants, providers and advisers—are beginning to realize that the real purpose of 401(k) plans is—or at any rate should be—to provide monthly income in retirement. As a result, the government, and particularly the U.S. Departments of Labor and Treasury, are increasingly interested in retirement income. Providers and advisers are also focusing on the issue. This is due to the simple truth that, in retirement, 401(k) participants need to withdraw their money on a monthly basis to pay their mortgages, phone bills, rent, utilities, and so on. In other words, 401(k) accounts need to generate a monthly “paycheck.”In turn, that raises obvious issues about the appropriate way to invest and withdraw money in retirement. For example, a couple—both age 65—can reasonably expect that at least one of them will be alive—and need income—at age 95. (We are working on another article about on the probabilities of living to various ages. That article will be distributed in the next few months.) How can enough money be accumulated over 40 years, say, between the ages of 25 and 65, to provide a 30-year, prepaid retirement? It is difficult to do that. It is also difficult to properly withdraw money in a way that it lasts for 30 years. The sustainable withdrawal rates are surprisingly small, for example, 4% or 5% per year.About a year ago, the Departments of Labor and Treasury issued a request for information (RFI) about sustainable retirement income. The RFI asked about both insured and uninsured solutions. An organization that we support, the Institutional Retirement Income Council (IRIC), provided detailed and thoughtful responses to the questions. (As a disclosure, Fred Reish was part of the IRIC team that drafted the answers.)This bulletin quotes four of the questions asked by those agencies and provides the answers given by IRIC. The purpose of this bulletin is not to persuade you to agree with those conclusions, but rather to encourage you to think about the questions and answers. We believe that everyone in the retirement community—plan sponsors, fiduciaries, participants, providers and advisers—needs to have an answer, or perhaps multiple answers, to these questions. In other words, our purpose is to stimulate thought and encourage debate.401(k) participants receive quarterly statements of their account balances. Surveys by providers and others generally report on 401(k) account balances in terms of averages, averages by age group, and so on. In other words, it is common in almost all reporting and any conversation about 401(k) plans to refer to “account balances.”
But, the 401(k) industry—plan sponsors, participants, providers and advisers—are beginning to realize that the real purpose of 401(k) plans is—or at any rate should be—to provide monthly income in retirement. As a result, the government, and particularly the U.S. Departments of Labor and Treasury, are increasingly interested in retirement income. Providers and advisers are also focusing on the issue. This is due to the simple truth that, in retirement, 401(k) participants need to withdraw their money on a monthly basis to pay their mortgages, phone bills, rent, utilities, and so on. In other words, 401(k) accounts need to generate a monthly “paycheck.”
In turn, that raises obvious issues about the appropriate way to invest and withdraw money in retirement. For example, a couple—both age 65—can reasonably expect that at least one of them will be alive—and need income—at age 95. (We are working on another article about on the probabilities of living to various ages. That article will be distributed in the next few months.) How can enough money be accumulated over 40 years, say, between the ages of 25 and 65, to provide a 30-year, prepaid retirement? It is difficult to do that. It is also difficult to properly withdraw money in a way that it lasts for 30 years. The sustainable withdrawal rates are surprisingly small, for example, 4% or 5% per year.
About a year ago, the Departments of Labor and Treasury issued a request for information (RFI) about sustainable retirement income. The RFI asked about both insured and uninsured solutions. An organization that we support, the Institutional Retirement Income Council (IRIC), provided detailed and thoughtful responses to the questions. (As a disclosure, Fred Reish was part of the IRIC team that drafted the answers.)
This bulletin quotes four of the questions asked by those agencies and provides the answers given by IRIC. The purpose of this bulletin is not to persuade you to agree with those conclusions, but rather to encourage you to think about the questions and answers. We believe that everyone in the retirement community—plan sponsors, fiduciaries, participants, providers and advisers—needs to have an answer, or perhaps multiple answers, to these questions. In other words, our purpose is to stimulate thought and encourage debate.
CEFEX and fi360 sponsored attorney Fred Reish to provide a thorough overview of the proposed advice and 408(b)(2) regulations. If you are a plan fiduciary who has hired a person or firm to provide your employees advice on their 401k, or an advisor/broker that works with 401k participants, this is essentially a must-listen event. The following were a number of interesting points which affect plan sponsors and advisors:
Click Here to View the Webinar Recording / Slides at fi360.com
(basic contact information is required, and you will simply receive their email newsletter, which contains great content)
Last month, we brought on a new client who was going through a provider change. During our interaction with their employees, we were shocked to find what their old 401k provider DIDN’T offer compared with what their new provider DID. For the sake of full disclosure, we tend to be a little naive in assuming that certain features are a given when it comes to the capabilities of 401k provider websites. That being said, it’s 2011. I can order a burrito from my phone. Thus, the following is a list of basic online tools (in our naive minds) that we have found participants enjoy, and quite frankly expect in today’s digital age:
As you can see, each of these features can greatly benefit participants as well as those trying to help them understand what is or isn’t happening with their retirement account. Give them the tools, and they will act. Are there any we missed that you would add to this list?
A recent study illustrated finds that 401k participants using advice are better diversified and have larger balances. Here are some interesting findings of the survey:
These results are very similar to our experience with 401k investors. We find that participants using advice (or managed accounts) are better diversified and experience better downside protection due to improved risk management. Additionally, the larger the balance, the more likely the participant is to seek advice.
“The numbers tell us that participants with larger account balances are the ones who seek out advice, which helps them continue to move ahead,” said Kelli Send, Senior Vice President, in a press release. “However, the study results argue advice for all will improve diversification and performance.”
Read the Article at PlanSponsor.com
