Give ‘em points for chutzpah.
The Washington Post takes arguably the most popular investor in America to task over the retirement plan choices in the various companies he owns.
We’re talking about Warren Buffet, Berkshire Hathaway and its subsidiaries, of course. It appears the folksy, Midwest, “keep it simple” persona for which he’s known doesn’t necessarily translate to the retirement plan options he provides employees.
Post columnist Allan Sloan credits financial advisor Eli Fried for bringing the discrepancies to his attention, and proceeds with a thorough deconstruction of the octogenarian’s offerings.
The rub, of course, revolves around low-cost index funds, and Buffett’s past advocacy.
“By periodically investing in an index fund …the know-nothing investor can actually outperform most investment professionals,” Sloan quotes from a 1993 letter to Berkshire Hathaway shareholders. And as recently as 2016, he noted “Both large and small investors should stick with low-cost index funds.”
And who could forget his widely-reported bet on passive performance over uber-active hedge fund strategies, which he won.
Except his practice falls short of his preach.
“… many of the subsidiaries offer little or nothing in the way of index funds,” Sloan writes. “And even when they do offer such funds, different Berkshire employees can end up paying wildly divergent fees for the same investment, depending on which operation they work for. Those differences can cost — or save — them tens of thousands of dollars over the course of decades.”
He goes on to describe examples involving Berkshire-owned companies, including Applied Underwriters, Jordan’s Furniture and BoatU.S.
Sloan surmises that “differences among Berkshire funds is that the more fees an employee pays for her 401(k) funds, the lower the record-keeping, administrative, custodial and other costs her employer has to pay.”
If true, the ground beneath Tibble v. Edison just shook. As the Post largely reaches a consumer audience (as opposed to a professional readership like ours) it might not be as aware of litigation’s stranglehold on the industry. What Sloan described is the type of behavior guys like Jerome Schlichter hunt, and his ears just pricked.
Considering Schlichter has sued health plans, universities and other non-profits (as we’ve said, the Vatican might be next), he would have no problem with a sacred cash cow like Berkshire.
Whatever might happen, it’s not over, and we’ll see how Warren responds.
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.
