Financial Opinion and Insights

A Huge Number of Retirement Plans May Soon Become Prohibited Transactions.

The Independent Financial GroupJim Lorenzen, CFP®, AIF®

Few retirement plan fiduciaries can document that they are monitoring their providers or whether their decisions are delivering value to help participants help themselves.

We live in an age when everyone is online and information is easy to access.   Remember what happened to Bank of America when they tried to raise their fees?  When plan participants begin receiving disclosures, they’ll – as well as attorneys looking for clients – will begin looking around, and the questions will begin:

“Why are we paying so much in fees?   I saw on Vanguard’s website that their average expense ratio is 0.21% and that the industry average is 1.15%.   I’ve I’d been in Vanguard, I’d been able to keep 93% of my investment returns while non-Vanguard investors keep, on average, just 67% of their returns!” [Source: Vanguard website ad, April 3, 2012].

Disgruntled participants will have no trouble obtaining Brightscope’s  website, allowing them to compare their plan to others.   They’ll be able to see the ratings difference not only in dollars and cents, but in terms of how much longer they’ll have to work!  For many, a 7-point difference could amount to 5 additional years of work and over $100,000 of lost retirement income!

How many plan sponsors will be able to demonstrate why they made their choice of recordkeepers and investment options?   If employees learn the top executives received an allowance for financial planning, they’ll feel even worse if the same executives didn’t feel these employees didn’t deserve receiving a periodic gap analysis to measure their progress towards achieving their retirement goals.

It’s a shame, too.  Too many plan sponsors have been so used to cutting corners for so long, they don’t even realize there are easier solutions available – often less expensive and with far fewer headaches.



Jim Lorenzen, CFP®, AIF®Jim Lorenzen is a Certified Financial Planner® and an Accredited Investment Fiduciary® in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors and selected individual investors. Plan sponsors can sign-up for Retirement Plan Insights here.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional. 

Written by Jim Lorenzen, CFP®, AIF®

April 26, 2012 at 8:00 am