Ensuring that Americans are able to retire with dignity (and sustain that dignity throughout retirement) begins with helping 401k plan sponsors realize and fulfill their fiduciary obligations—a concept easy enough for an advisor to write on their to-do list, but more difficult than it seems to check off.
“As much attention has been given to that word—‘fiduciary’—as much attention as has been given to that topic, most plan sponsors don’t even know that they’re fiduciaries,” speaker Jonathan Young said in a presentation at Fi360’s annual conference in San Diego on Thursday.
According to Young, senior vice president and senior national accounts manager with American Funds, study findings uncovered further problems. “Those that knew that they were fiduciaries, they thought that just was a word. They didn’t know what it meant. They didn’t know they had personal liability,” he explained.
He referred to this widespread lack of knowledge as “the elephant in the room” and a situation that advisors need to address.
While a complicated concept to grasp—given that the DOL fiduciary rule is influx, the industry is in a period of rapid transitions thanks to technology, and so on—according to Young, the key may be to take on a “less is more” approach to clarification.
He added that a great starting place is to explain the “why,” rather than “what” and “how” the obligation affects participant outcomes in order to inspire everyone involved to define and work toward a common goal—whatever that may be for the specific plan sponsor and their participants.
He emphasized a focus on evaluating investments and reiterated several times (with proof in the form of charts, graphs and anecdotes) that “they are not all created equal”—something advisors should deem “incredibly important” as growth tends to ultimately make up for 70 percent of an account’s overall value.
Also included in his “back to basics” list of information plan sponsors need to know:
- Fiduciary liability can’t simply be “hired away.”
- Ongoing investment monitoring and fee evaluation, along with documenting these processes, is paramount.
- Passive strategies aren’t safer than active; both “carry litigation risk.”
- Low cost does not equate to low-risk and is not always the best or safest choice.
- Plans must strive to be best for participants and beneficiaries, as opposed to safest or easiest for fiduciaries.
“There are two ways a human can feel confident: one is knowledge and the other is ignorance,” Young said, quoting Charles Darwin. He added, “And ignorance is not an option, folks.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
