Motive for 401(k) advisor to change funds? Something fishy?

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zeusxix
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Motive for 401(k) advisor to change funds? Something fishy?

Post by zeusxix » Tue Dec 19, 2017 9:06 pm

The advisor for our company's 401(k) has just notified us that they are "replacing" many of our current funds with new ones. If you choose not to change your current allocation they will automatically roll you into the new offerings. Largely, these new funds are actively managed and far more expensive. For example, they are replacing the Vanguard Small Cap Value Index Fund with the Nuveen Small Cap Value Fund (FSCAX). With a 1.32% expense ratio this represents a 22x increase in cost to get small cap value exposure. Also, the Vanguard Value Index Fund will be replaced by the Dodge & Cox Stock Fund (DODGX), representing a 9x increase in expense ratio.

My questions are these. What would motivate our401(k) advisor to change our offerings so drastically? Why are they so willing to commit to active management. To me, these are not "replacement" funds at all. Active vs. indexed, and far more expensive. By claiming these funds are "replacements" to low-cost index funds rather than alternatives, are they fulfilling their fiduciary responsibility?

PFInterest
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by PFInterest » Tue Dec 19, 2017 9:31 pm

It's called money. Or idiocy. Likely both.

Outafter20
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by Outafter20 » Tue Dec 19, 2017 9:36 pm

My wife's 401(k) plan just did the same thing. All the new stock and target date funds have .50% 12b1 fees, the bond funds have a .25% 12b1 fee.

zeusxix
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by zeusxix » Tue Dec 19, 2017 9:58 pm

PFInterest wrote:
Tue Dec 19, 2017 9:31 pm
It's called money. Or idiocy. Likely both.
Could you elaborate? Are you implying that the advisor will make more money from us by offering these particular funds? How would he benefit by offering a Nuveen fund over a Vanguard fund?

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by pkcrafter » Tue Dec 19, 2017 10:10 pm

Wow, this is really outrageous. The new fiduciary rule, which would have limited this kind of stuff, has been delayed until July, 2019, which means it's all but dead. :confused

Paul
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by GoldenFinch » Tue Dec 19, 2017 10:12 pm

zeusxix wrote:
Tue Dec 19, 2017 9:58 pm
PFInterest wrote:
Tue Dec 19, 2017 9:31 pm
It's called money. Or idiocy. Likely both.
Could you elaborate? Are you implying that the advisor will make more money from us by offering these particular funds? How would he benefit by offering a Nuveen fund over a Vanguard fund?
Most likely they will profit more from these new funds. We had an advisor do this a few years ago.

Outafter20
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by Outafter20 » Tue Dec 19, 2017 10:14 pm

zeusxix wrote:
Tue Dec 19, 2017 9:58 pm
PFInterest wrote:
Tue Dec 19, 2017 9:31 pm
It's called money. Or idiocy. Likely both.
Could you elaborate? Are you implying that the advisor will make more money from us by offering these particular funds? How would he benefit by offering a Nuveen fund over a Vanguard fund?
Someone is making more money. The Vanguard funds has no 12b1 fee, FSCAX has a .25% 12b1 fee. It is also a Class A fund with a 5.75% front load.
Although many 401(k) funds waive the load.


http://financials.morningstar.com/fund/ ... ture=en_US

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Wildebeest
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by Wildebeest » Tue Dec 19, 2017 10:34 pm

You may want to ask if (s) he is a fiduciary. How does this change helps when the employee reach retirement? Back this up with references to Bogleheads Wiki. Cc as many people in 401 K as you have access to.

My 401 K advisor told me that that if you talk to your fellow employees about investments choices, you might be considered a fiduciary and you may be liable. This is after I asked if he was a fiduciary.

This got me all fired up ad I gave my people copies of " If you can" by Bill Bernstein. I checked one week later with " my people" and nobody had read it yet. I told them they get 4.4 % of their salary and they are vested and they can get 25 % of investments in 25 years of additonal yield, if they fight for low cost index funds.

http://www.amazon.com/If-You-Can-Millen ... +bernstein

We will see if I have credibility.
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dbr
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by dbr » Wed Dec 20, 2017 10:26 am

It is possible this involves saving the company money they were otherwise spending on the plan. The quid-pro is that the plan provider gets the money directly from the employees.

The responsibility for this and the economics of this lie squarely with your management. Either they are cutting your compensation and benefits with this or they are incompetent and have been taken in by someone. Either way the next question to ask is how capable they are to manage all the rest of the business, what their ethical standards are, and whether or not you want to keep working for this sort of people.

Mr.BB
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by Mr.BB » Wed Dec 20, 2017 10:40 am

Is it possible (or proper?) to talk to your company's boss about this?
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ruralavalon
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by ruralavalon » Wed Dec 20, 2017 10:43 am

Outafter20 wrote:
Tue Dec 19, 2017 10:14 pm
zeusxix wrote:
Tue Dec 19, 2017 9:58 pm
PFInterest wrote:
Tue Dec 19, 2017 9:31 pm
It's called money. Or idiocy. Likely both.
Could you elaborate? Are you implying that the advisor will make more money from us by offering these particular funds? How would he benefit by offering a Nuveen fund over a Vanguard fund?
Someone is making more money. The Vanguard funds has no 12b1 fee, FSCAX has a .25% 12b1 fee. It is also a Class A fund with a 5.75% front load.
Although many 401(k) funds waive the load.


http://financials.morningstar.com/fund/ ... ture=en_US
Wow, both a front load and a 12b1 fee, a great deal for the advisor who sells the fund :!: :!:
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zeusxix
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by zeusxix » Wed Dec 20, 2017 10:55 am

Mr.BB wrote:
Wed Dec 20, 2017 10:40 am
Is it possible (or proper?) to talk to your company's boss about this?
I am currently discussing this issue with one of my bosses. He seems very receptive, although I am a bit wary of being considered a "troublemaker". I will see how receptive his son is when he returns from vacation. My employers may be receiving some benefit from switching these funds, but knowing them very well, I see them more as falling for a sales ploy then knowingly trying to line their pockets at the expense of their employees. I do believe they have our best interests in mind, but lack significant knowledge on the subject and, in my opinion, place far too much faith in what their advisors tell them.

My employers are very good at doing what they do for many, many decades, but due to having the benefit of 100+ years of family owned success and not necessarily having the need to diligently save, they have a significant lack of knowledge on how the investment world makes their money. Ironically, it will be them who suffer the most significant losses because they have the largest amount of money invested with our plan.

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ruralavalon
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by ruralavalon » Wed Dec 20, 2017 11:35 am

zeusxix wrote:
Wed Dec 20, 2017 10:55 am
Mr.BB wrote:
Wed Dec 20, 2017 10:40 am
Is it possible (or proper?) to talk to your company's boss about this?
I am currently discussing this issue with one of my bosses. He seems very receptive, although I am a bit wary of being considered a "troublemaker". I will see how receptive his son is when he returns from vacation. My employers may be receiving some benefit from switching these funds, but knowing them very well, I see them more as falling for a sales ploy then knowingly trying to line their pockets at the expense of their employees. I do believe they have our best interests in mind, but lack significant knowledge on the subject and, in my opinion, place far too much faith in what their advisors tell them.

My employers are very good at doing what they do for many, many decades, but due to having the benefit of 100+ years of family owned success and not necessarily having the need to diligently save, they have a significant lack of knowledge on how the investment world makes their money. Ironically, it will be them who suffer the most significant losses because they have the largest amount of money invested with our plan.
Many owners/managers of small businesses simply do not know much about investing, and your best approach is to try to educate them on how much they are hurt as plan participants by high fees.

You are probably right that they were sold on the change to high fees on the plan participants by the offer of low or no fees charged to their business. There are small business 401k plans available with low fees both to the business and low fees to the plan participants. Look at www.employeefiduciary.com, Vanguard and Fidelity.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

p0nyboy
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by p0nyboy » Wed Dec 20, 2017 11:46 am

Definitely talk to management first...explain the situation to them and show them how much more expensive it is going to cost everyone.

If that doesnt work send out an email to as many employees as you can. Illustrate again how much more they will be paying each year if they have $10k invested, $50k invested, $100k invested, etc etc...each and every year. Let them know if they hate money just ignore this email, lol.

dbr
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by dbr » Wed Dec 20, 2017 4:25 pm

zeusxix wrote:
Wed Dec 20, 2017 10:55 am
Mr.BB wrote:
Wed Dec 20, 2017 10:40 am
Is it possible (or proper?) to talk to your company's boss about this?
I am currently discussing this issue with one of my bosses. He seems very receptive, although I am a bit wary of being considered a "troublemaker". I will see how receptive his son is when he returns from vacation. My employers may be receiving some benefit from switching these funds, but knowing them very well, I see them more as falling for a sales ploy then knowingly trying to line their pockets at the expense of their employees. I do believe they have our best interests in mind, but lack significant knowledge on the subject and, in my opinion, place far too much faith in what their advisors tell them.

My employers are very good at doing what they do for many, many decades, but due to having the benefit of 100+ years of family owned success and not necessarily having the need to diligently save, they have a significant lack of knowledge on how the investment world makes their money. Ironically, it will be them who suffer the most significant losses because they have the largest amount of money invested with our plan.
So they are incompetent and have been sold a bill of goods that facilitates having their employees money stolen by scoundrels along with their own. It will be a test of your tact and your people skills to get this fixed. But then, maybe they can see the light and respond in a good way. Good luck.

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ruralavalon
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by ruralavalon » Wed Dec 20, 2017 5:10 pm

Here are some sources of information that might help you demonstrate to the owners/managers how they and other plan participants are hurt by the new arrangement.

Seemingly small annual fees have a large cumulative impact over time. Vanguard blog post, "Stopping the silent killer of returns". Please see the table at the end of the post, "Cumulative impact of fees on ending wealth at various time horizons." Also, here is a calculator you could use to estimate the impact of investing expenses. Bankrate.com, "Mutual fund fees calculator".

Also, low expense ratios are the best predictor of future performance. Morningstar article . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by Mr.BB » Thu Dec 21, 2017 6:55 am

zeusxix wrote:
Wed Dec 20, 2017 10:55 am
Mr.BB wrote:
Wed Dec 20, 2017 10:40 am
Is it possible (or proper?) to talk to your company's boss about this?
I am currently discussing this issue with one of my bosses. He seems very receptive, although I am a bit wary of being considered a "troublemaker". I will see how receptive his son is when he returns from vacation. My employers may be receiving some benefit from switching these funds, but knowing them very well, I see them more as falling for a sales ploy then knowingly trying to line their pockets at the expense of their employees. I do believe they have our best interests in mind, but lack significant knowledge on the subject and, in my opinion, place far too much faith in what their advisors tell them.

My employers are very good at doing what they do for many, many decades, but due to having the benefit of 100+ years of family owned success and not necessarily having the need to diligently save, they have a significant lack of knowledge on how the investment world makes their money. Ironically, it will be them who suffer the most significant losses because they have the largest amount of money invested with our plan.
I always believed that if a person does not like a business's policy or decision they should also come to the table with a solution. I have always found that bosses appreciate and admire that. Personally, I would have ready (if they ask for it), examples of the costs of their higher priced funds for the employees over the long term. A basic expense ratio calculator showing the cost difference of an index fund and some of these new funds over a ten and twenty year period with different yearly savings amounts, is a simple but dramatic way to express your concerns.
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by bottlecap » Thu Dec 21, 2017 7:13 am

What is a "company's 401k advisor"? Did the advisor make the changes? Did the company?

In all likelihood, your company agreed to this change because it will cost it less money somehow. If you were a 401k provider, how would you make it more attractive for the employer?

JT

dbr
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by dbr » Thu Dec 21, 2017 9:08 am

bottlecap wrote:
Thu Dec 21, 2017 7:13 am
What is a "company's 401k advisor"? Did the advisor make the changes? Did the company?

In all likelihood, your company agreed to this change because it will cost it less money somehow. If you were a 401k provider, how would you make it more attractive for the employer?

JT
I agree the essence of the problem is right there.

dbr
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by dbr » Thu Dec 21, 2017 9:09 am

Mr.BB wrote:
Thu Dec 21, 2017 6:55 am
zeusxix wrote:
Wed Dec 20, 2017 10:55 am
Mr.BB wrote:
Wed Dec 20, 2017 10:40 am
Is it possible (or proper?) to talk to your company's boss about this?
I am currently discussing this issue with one of my bosses. He seems very receptive, although I am a bit wary of being considered a "troublemaker". I will see how receptive his son is when he returns from vacation. My employers may be receiving some benefit from switching these funds, but knowing them very well, I see them more as falling for a sales ploy then knowingly trying to line their pockets at the expense of their employees. I do believe they have our best interests in mind, but lack significant knowledge on the subject and, in my opinion, place far too much faith in what their advisors tell them.

My employers are very good at doing what they do for many, many decades, but due to having the benefit of 100+ years of family owned success and not necessarily having the need to diligently save, they have a significant lack of knowledge on how the investment world makes their money. Ironically, it will be them who suffer the most significant losses because they have the largest amount of money invested with our plan.
I always believed that if a person does not like a business's policy or decision they should also come to the table with a solution. I have always found that bosses appreciate and admire that. Personally, I would have ready (if they ask for it), examples of the costs of their higher priced funds for the employees over the long term. A basic expense ratio calculator showing the cost difference of an index fund and some of these new funds over a ten and twenty year period with different yearly savings amounts, is a simple but dramatic way to express your concerns.
You are right about those things. But I would be careful. This demonstration shows that management is either incompetent or malevolent, and that sort of thing is not always taken well.

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by vested1 » Thu Dec 21, 2017 9:16 am

zeusxix wrote:
Wed Dec 20, 2017 10:55 am
Mr.BB wrote:
Wed Dec 20, 2017 10:40 am
Is it possible (or proper?) to talk to your company's boss about this?
I am currently discussing this issue with one of my bosses. He seems very receptive, although I am a bit wary of being considered a "troublemaker". I will see how receptive his son is when he returns from vacation. My employers may be receiving some benefit from switching these funds, but knowing them very well, I see them more as falling for a sales ploy then knowingly trying to line their pockets at the expense of their employees. I do believe they have our best interests in mind, but lack significant knowledge on the subject and, in my opinion, place far too much faith in what their advisors tell them.

My employers are very good at doing what they do for many, many decades, but due to having the benefit of 100+ years of family owned success and not necessarily having the need to diligently save, they have a significant lack of knowledge on how the investment world makes their money. Ironically, it will be them who suffer the most significant losses because they have the largest amount of money invested with our plan.
Alarm bells are ringing. All this and nepotism too?

simas
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by simas » Thu Dec 21, 2017 10:12 am

"Alarm bells are ringing. All this and nepotism too?"

Family owned/run company...

vested1
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by vested1 » Thu Dec 21, 2017 10:57 am

simas wrote:
Thu Dec 21, 2017 10:12 am
"Alarm bells are ringing. All this and nepotism too?"

Family owned/run company...
I stand corrected.

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by Jack FFR1846 » Thu Dec 21, 2017 11:19 am

Are there ANY low cost index funds remaining? I consider my current 401k to be a great plan. But it's only great because I have a big IRA that gives me the ability to make my AA whatever I want it to be. In my Fidelity 401k at Megacorp, I have exactly 1 good, low cost index fund. Fidelity S&P 500. Fine with me. I don't need 10 good funds, I only need one. Look at whatever else is available. You might find something else acceptable. Look to see also what the terms are for an in service distribution. You might be able to roll the money over to a good IRA.
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ruralavalon
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by ruralavalon » Thu Dec 21, 2017 12:29 pm

Jack FFR1846 wrote:
Thu Dec 21, 2017 11:19 am
Are there ANY low cost index funds remaining? I consider my current 401k to be a great plan. But it's only great because I have a big IRA that gives me the ability to make my AA whatever I want it to be. In my Fidelity 401k at Megacorp, I have exactly 1 good, low cost index fund. Fidelity S&P 500. Fine with me. I don't need 10 good funds, I only need one. Look at whatever else is available. You might find something else acceptable. Look to see also what the terms are for an in service distribution. You might be able to roll the money over to a good IRA.
Also Dodge & Cox Stock Fund (DODGX) ER 0.52% is a pretty good actively managed domestic stock fund to use, if no good domestic stock index fund is offered.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

zeusxix
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by zeusxix » Thu Dec 21, 2017 9:32 pm

Jack FFR1846 wrote:
Thu Dec 21, 2017 11:19 am
Are there ANY low cost index funds remaining? I consider my current 401k to be a great plan. But it's only great because I have a big IRA that gives me the ability to make my AA whatever I want it to be. In my Fidelity 401k at Megacorp, I have exactly 1 good, low cost index fund. Fidelity S&P 500. Fine with me. I don't need 10 good funds, I only need one. Look at whatever else is available. You might find something else acceptable. Look to see also what the terms are for an in service distribution. You might be able to roll the money over to a good IRA.
As far as I can tell, we still are offered the S&P 500 index at 3bps.

On another note, at the urging of my boss/owner, I emailed our advisor this afternoon. I expressed my deep concern regarding the seismic shift in their offerings. Also, I expressed concerns over the vast overhaul. I said I could understand the perceived need or desire by the firm to switch a few of the funds, but replacing ~80% of our current selection, including our core holdings? We will see what they have to say.

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by dbr » Thu Dec 21, 2017 9:52 pm

zeusxix wrote:
Thu Dec 21, 2017 9:32 pm
Jack FFR1846 wrote:
Thu Dec 21, 2017 11:19 am
Are there ANY low cost index funds remaining? I consider my current 401k to be a great plan. But it's only great because I have a big IRA that gives me the ability to make my AA whatever I want it to be. In my Fidelity 401k at Megacorp, I have exactly 1 good, low cost index fund. Fidelity S&P 500. Fine with me. I don't need 10 good funds, I only need one. Look at whatever else is available. You might find something else acceptable. Look to see also what the terms are for an in service distribution. You might be able to roll the money over to a good IRA.
As far as I can tell, we still are offered the S&P 500 index at 3bps.

On another note, at the urging of my boss/owner, I emailed our advisor this afternoon. I expressed my deep concern regarding the seismic shift in their offerings. Also, I expressed concerns over the vast overhaul. I said I could understand the perceived need or desire by the firm to switch a few of the funds, but replacing ~80% of our current selection, including our core holdings? We will see what they have to say.
Why on earth is the owner referring you to the advisor? It is the owner's job to know why his employee benefits are structured the way they are. Why isn't he taking responsibility for this himself? No wonder you have become a victim of this situation.

zeusxix
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by zeusxix » Fri Dec 22, 2017 10:39 am

dbr wrote:
Thu Dec 21, 2017 9:52 pm
zeusxix wrote:
Thu Dec 21, 2017 9:32 pm
Jack FFR1846 wrote:
Thu Dec 21, 2017 11:19 am
Are there ANY low cost index funds remaining? I consider my current 401k to be a great plan. But it's only great because I have a big IRA that gives me the ability to make my AA whatever I want it to be. In my Fidelity 401k at Megacorp, I have exactly 1 good, low cost index fund. Fidelity S&P 500. Fine with me. I don't need 10 good funds, I only need one. Look at whatever else is available. You might find something else acceptable. Look to see also what the terms are for an in service distribution. You might be able to roll the money over to a good IRA.
As far as I can tell, we still are offered the S&P 500 index at 3bps.

On another note, at the urging of my boss/owner, I emailed our advisor this afternoon. I expressed my deep concern regarding the seismic shift in their offerings. Also, I expressed concerns over the vast overhaul. I said I could understand the perceived need or desire by the firm to switch a few of the funds, but replacing ~80% of our current selection, including our core holdings? We will see what they have to say.
Why on earth is the owner referring you to the advisor? It is the owner's job to know why his employee benefits are structured the way they are. Why isn't he taking responsibility for this himself? No wonder you have become a victim of this situation.
The owners have taken the stance that they can not be in a position to help select the funds that we are offered. It exposes them to too much liability if the funds underperform. With that said, he has given the new selections to his personal financial advisor to get his take on it. He has a call set up with him on Tuesday.

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by ERISA Stone » Fri Dec 22, 2017 10:45 am

zeusxix wrote:
Fri Dec 22, 2017 10:39 am


The owners have taken the stance that they can not be in a position to help select the funds that we are offered. It exposes them to too much liability if the funds underperform.
I've got some bad news for your owners.......

vaught
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by vaught » Fri Dec 22, 2017 10:59 am

ERISA Stone wrote:
Fri Dec 22, 2017 10:45 am
zeusxix wrote:
Fri Dec 22, 2017 10:39 am


The owners have taken the stance that they can not be in a position to help select the funds that we are offered. It exposes them to too much liability if the funds underperform.
I've got some bad news for your owners.......
Agree. If my memory is correct there have been several lawsuits against companies for specifically NOT providing a low cost option. Admittedly the attorneys are likely only to go after the biggest plans and this family owned company might not fit the bill but it does illustrate the point that just turning a blind eye to the advisor and investment options is not a prudent choice either.

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by livesoft » Fri Dec 22, 2017 11:01 am

zeusxix wrote:
Fri Dec 22, 2017 10:39 am
With that said, he has given the new selections to his personal financial advisor to get his take on it. He has a call set up with him on Tuesday.
That's the problem my spouse's company has with their 401(k) plan. The personal financial sales rep of the owner is a charlatan and his choices for the 401(k) plan reflect that. Only recently has her plan offered 2 better investment options: VFIAX and a self-directed brokerage account.
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by JW-Retired » Fri Dec 22, 2017 11:19 am

zeusxix wrote:
Thu Dec 21, 2017 9:32 pm
As far as I can tell, we still are offered the S&P 500 index at 3bps.

On another note, at the urging of my boss/owner, I emailed our advisor this afternoon. I expressed my deep concern regarding the seismic shift in their offerings. Also, I expressed concerns over the vast overhaul. I said I could understand the perceived need or desire by the firm to switch a few of the funds, but replacing ~80% of our current selection, including our core holdings? We will see what they have to say.
IMO, you are being extremely naive to communicate with the either the "advisor" or management about this. You will never ever get a straight answer from the advisor, since it goes directly against their potential income. Moreover, if you truly have a low cost SP500 option you can work with what is the problem? Pestering management for no personal benefit is never wise.

Don't forget, most of the other employees are not Bogleheads! They will be picking their 401k funds by nice sounding names not costs.
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by Mr.BB » Fri Dec 22, 2017 11:39 am

dbr wrote:
Thu Dec 21, 2017 9:09 am
Mr.BB wrote:
Thu Dec 21, 2017 6:55 am
zeusxix wrote:
Wed Dec 20, 2017 10:55 am
Mr.BB wrote:
Wed Dec 20, 2017 10:40 am
Is it possible (or proper?) to talk to your company's boss about this?
I am currently discussing this issue with one of my bosses. He seems very receptive, although I am a bit wary of being considered a "troublemaker". I will see how receptive his son is when he returns from vacation. My employers may be receiving some benefit from switching these funds, but knowing them very well, I see them more as falling for a sales ploy then knowingly trying to line their pockets at the expense of their employees. I do believe they have our best interests in mind, but lack significant knowledge on the subject and, in my opinion, place far too much faith in what their advisors tell them.

My employers are very good at doing what they do for many, many decades, but due to having the benefit of 100+ years of family owned success and not necessarily having the need to diligently save, they have a significant lack of knowledge on how the investment world makes their money. Ironically, it will be them who suffer the most significant losses because they have the largest amount of money invested with our plan.
I always believed that if a person does not like a business's policy or decision they should also come to the table with a solution. I have always found that bosses appreciate and admire that. Personally, I would have ready (if they ask for it), examples of the costs of their higher priced funds for the employees over the long term. A basic expense ratio calculator showing the cost difference of an index fund and some of these new funds over a ten and twenty year period with different yearly savings amounts, is a simple but dramatic way to express your concerns.
You are right about those things. But I would be careful. This demonstration shows that management is either incompetent or malevolent, and that sort of thing is not always taken well.
Absolutely tread carefully. The information you give them should be basically on a volunteer basis if they ask for it. it's just nice to have it if they do ask.
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by pkcrafter » Fri Dec 22, 2017 12:04 pm

If your company has a 401k that is subject to ERISA, there should be an employee who is supposed to be acting as a fiduciary. The way people are acting would suggest you plan is not under ERISA rules, but you should check.

Also, you mentioned an advisor. Is using the advisor an option you have to pay for? Can you opt out?

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by Dottie57 » Fri Dec 22, 2017 12:24 pm

zeusxix wrote:
Tue Dec 19, 2017 9:06 pm
The advisor for our company's 401(k) has just notified us that they are "replacing" many of our current funds with new ones. If you choose not to change your current allocation they will automatically roll you into the new offerings. Largely, these new funds are actively managed and far more expensive. For example, they are replacing the Vanguard Small Cap Value Index Fund with the Nuveen Small Cap Value Fund (FSCAX). With a 1.32% expense ratio this represents a 22x increase in cost to get small cap value exposure. Also, the Vanguard Value Index Fund will be replaced by the Dodge & Cox Stock Fund (DODGX), representing a 9x increase in expense ratio.

My questions are these. What would motivate our401(k) advisor to change our offerings so drastically? Why are they so willing to commit to active management. To me, these are not "replacement" funds at all. Active vs. indexed, and far more expensive. By claiming these funds are "replacements" to low-cost index funds rather than alternatives, are they fulfilling their fiduciary responsibility?
Nuveen probably has fees which at least a portion of would go into his or her pocket.

Vanguard doesn't have the sames fees.

Money.

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by ruralavalon » Fri Dec 22, 2017 12:40 pm

zeusxix wrote:
Thu Dec 21, 2017 9:32 pm
Jack FFR1846 wrote:
Thu Dec 21, 2017 11:19 am
Are there ANY low cost index funds remaining? I consider my current 401k to be a great plan. But it's only great because I have a big IRA that gives me the ability to make my AA whatever I want it to be. In my Fidelity 401k at Megacorp, I have exactly 1 good, low cost index fund. Fidelity S&P 500. Fine with me. I don't need 10 good funds, I only need one. Look at whatever else is available. You might find something else acceptable. Look to see also what the terms are for an in service distribution. You might be able to roll the money over to a good IRA.
As far as I can tell, we still are offered the S&P 500 index at 3bps.

On another note, at the urging of my boss/owner, I emailed our advisor this afternoon. I expressed my deep concern regarding the seismic shift in their offerings. Also, I expressed concerns over the vast overhaul. I said I could understand the perceived need or desire by the firm to switch a few of the funds, but replacing ~80% of our current selection, including our core holdings? We will see what they have to say.
If the S&P 500 index fund is still offered at 0.03% use that as the core of your portfolio. One or two good funds is all you need in a 401k to make the 401k plan useful, and that would be a very good fund.

It seems very hopeful to me that the owner/manager of your employer encouraged you to voice your concerns to the plan advisor. I don't think that's at all odd for a small family owned business. I suggest that you try to suggest a few specific improvements like 1) a low ER intermediate-term bond fund based on Bloomberg Barclays U.S. Aggregate Bond Index, and 2) a low ER international stock fund covering both developed and emerging markets.
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by ERISA Stone » Fri Dec 22, 2017 1:37 pm

vaught wrote:
Fri Dec 22, 2017 10:59 am
ERISA Stone wrote:
Fri Dec 22, 2017 10:45 am
zeusxix wrote:
Fri Dec 22, 2017 10:39 am


The owners have taken the stance that they can not be in a position to help select the funds that we are offered. It exposes them to too much liability if the funds underperform.
I've got some bad news for your owners.......
Agree. If my memory is correct there have been several lawsuits against companies for specifically NOT providing a low cost option. Admittedly the attorneys are likely only to go after the biggest plans and this family owned company might not fit the bill but it does illustrate the point that just turning a blind eye to the advisor and investment options is not a prudent choice either.
We disagree on this. I don't recall a successful lawsuit based strictly on the premise of not providing a "low-cost option." The bad news for your employer is he can mitigate his risk, but he will never be fully off the hook from a fiduciary perspective.

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by oldcomputerguy » Fri Dec 22, 2017 1:43 pm

Outafter20 wrote:
Tue Dec 19, 2017 10:14 pm
Someone is making more money. The Vanguard funds has no 12b1 fee, FSCAX has a .25% 12b1 fee. It is also a Class A fund with a 5.75% front load.
Although many 401(k) funds waive the load.
According to the Prospectus, DODGX does not have a 12b-1 fee, nor is it a load fee.
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by ruralavalon » Fri Dec 22, 2017 2:37 pm

oldcomputerguy wrote:
Fri Dec 22, 2017 1:43 pm
Outafter20 wrote:
Tue Dec 19, 2017 10:14 pm
Someone is making more money. The Vanguard funds has no 12b1 fee, FSCAX has a .25% 12b1 fee. It is also a Class A fund with a 5.75% front load.
Although many 401(k) funds waive the load.
According to the Prospectus, DODGX does not have a 12b-1 fee, nor is it a load fee.
That is correct.
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by vaught » Fri Dec 22, 2017 4:14 pm

ERISA Stone wrote:
Fri Dec 22, 2017 1:37 pm
vaught wrote:
Fri Dec 22, 2017 10:59 am
ERISA Stone wrote:
Fri Dec 22, 2017 10:45 am
zeusxix wrote:
Fri Dec 22, 2017 10:39 am


The owners have taken the stance that they can not be in a position to help select the funds that we are offered. It exposes them to too much liability if the funds underperform.
I've got some bad news for your owners.......
Agree. If my memory is correct there have been several lawsuits against companies for specifically NOT providing a low cost option. Admittedly the attorneys are likely only to go after the biggest plans and this family owned company might not fit the bill but it does illustrate the point that just turning a blind eye to the advisor and investment options is not a prudent choice either.
We disagree on this. I don't recall a successful lawsuit based strictly on the premise of not providing a "low-cost option." The bad news for your employer is he can mitigate his risk, but he will never be fully off the hook from a fiduciary perspective.
I'm not sure what you are disagreeing with. I merely stated there have been several lawsuits that have made this complaint. And that the owner turning a blind eye to advisor doesn't solve anything.

And some of these lawsuits have absolutely been successful. https://www.thestreet.com/story/1312935 ... mings.html

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by zeusxix » Fri Dec 22, 2017 4:25 pm

oldcomputerguy wrote:
Fri Dec 22, 2017 1:43 pm
Outafter20 wrote:
Tue Dec 19, 2017 10:14 pm
Someone is making more money. The Vanguard funds has no 12b1 fee, FSCAX has a .25% 12b1 fee. It is also a Class A fund with a 5.75% front load.
Although many 401(k) funds waive the load.
According to the Prospectus, DODGX does not have a 12b-1 fee, nor is it a load fee.
A better example would be them replacing VIGAX with the Parnassus Endeavor Fund.

The owner has been great about this so far. I have a very good working relationship with the owners. We work closely together on a daily basis, but I have been very conscious of offending the decision makers, namely him and his son. So far, he has been very receptive to confronting the 401(k) advisor on their choices. He has asked me to identify 10 of the old funds that I think should be kept. He is then going to take that to my choices to his personal advisor, who is completely unaffiliated with the 401(k) advisor, and see how our choices compare. I am very interested to see how we stack up. Once he has all of that information he is going to have a conversation with our 401(k) advisor.

Since I have his support it does seem like we could make some changes to the changes. Fingers Crossed.

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by ERISA Stone » Fri Dec 22, 2017 4:39 pm

vaught wrote:
Fri Dec 22, 2017 4:14 pm
ERISA Stone wrote:
Fri Dec 22, 2017 1:37 pm
vaught wrote:
Fri Dec 22, 2017 10:59 am
ERISA Stone wrote:
Fri Dec 22, 2017 10:45 am
zeusxix wrote:
Fri Dec 22, 2017 10:39 am


The owners have taken the stance that they can not be in a position to help select the funds that we are offered. It exposes them to too much liability if the funds underperform.
I've got some bad news for your owners.......
Agree. If my memory is correct there have been several lawsuits against companies for specifically NOT providing a low cost option. Admittedly the attorneys are likely only to go after the biggest plans and this family owned company might not fit the bill but it does illustrate the point that just turning a blind eye to the advisor and investment options is not a prudent choice either.
We disagree on this. I don't recall a successful lawsuit based strictly on the premise of not providing a "low-cost option." The bad news for your employer is he can mitigate his risk, but he will never be fully off the hook from a fiduciary perspective.
I'm not sure what you are disagreeing with. I merely stated there have been several lawsuits that have made this complaint. And that the owner turning a blind eye to advisor doesn't solve anything.

And some of these lawsuits have absolutely been successful. https://www.thestreet.com/story/1312935 ... mings.html
I disagree with the simplicity of the comment. The major case, Edison, that has been hailed as a win for low-cost funds had little to do with that. The advisor had participants in retail funds when the exact same institutional funds were available at a lower expense.

http://www.thinkadvisor.com/2015/06/17/ ... g-means-to

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by vaught » Fri Dec 22, 2017 4:59 pm

ERISA Stone wrote:
Fri Dec 22, 2017 4:39 pm
vaught wrote:
Fri Dec 22, 2017 4:14 pm
ERISA Stone wrote:
Fri Dec 22, 2017 1:37 pm
vaught wrote:
Fri Dec 22, 2017 10:59 am
ERISA Stone wrote:
Fri Dec 22, 2017 10:45 am


I've got some bad news for your owners.......
Agree. If my memory is correct there have been several lawsuits against companies for specifically NOT providing a low cost option. Admittedly the attorneys are likely only to go after the biggest plans and this family owned company might not fit the bill but it does illustrate the point that just turning a blind eye to the advisor and investment options is not a prudent choice either.
We disagree on this. I don't recall a successful lawsuit based strictly on the premise of not providing a "low-cost option." The bad news for your employer is he can mitigate his risk, but he will never be fully off the hook from a fiduciary perspective.
I'm not sure what you are disagreeing with. I merely stated there have been several lawsuits that have made this complaint. And that the owner turning a blind eye to advisor doesn't solve anything.

And some of these lawsuits have absolutely been successful. https://www.thestreet.com/story/1312935 ... mings.html
I disagree with the simplicity of the comment. The major case, Edison, that has been hailed as a win for low-cost funds had little to do with that. The advisor had participants in retail funds when the exact same institutional funds were available at a lower expense.

http://www.thinkadvisor.com/2015/06/17/ ... g-means-to
We will just have to agree to disagree.

My comment was pretty basic.

The owner said he purposely didn't delve into investment options so as to avoid liability.

I responded that the owners reasoning was flawed.

You seem to disagree which is fine.

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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by ruralavalon » Fri Dec 22, 2017 5:04 pm

zeusxix wrote:
Fri Dec 22, 2017 4:25 pm
oldcomputerguy wrote:
Fri Dec 22, 2017 1:43 pm
Outafter20 wrote:
Tue Dec 19, 2017 10:14 pm
Someone is making more money. The Vanguard funds has no 12b1 fee, FSCAX has a .25% 12b1 fee. It is also a Class A fund with a 5.75% front load.
Although many 401(k) funds waive the load.
According to the Prospectus, DODGX does not have a 12b-1 fee, nor is it a load fee.
A better example would be them replacing VIGAX with the Parnassus Endeavor Fund.

The owner has been great about this so far. I have a very good working relationship with the owners. We work closely together on a daily basis, but I have been very conscious of offending the decision makers, namely him and his son. So far, he has been very receptive to confronting the 401(k) advisor on their choices. He has asked me to identify 10 of the old funds that I think should be kept. He is then going to take that to my choices to his personal advisor, who is completely unaffiliated with the 401(k) advisor, and see how our choices compare. I am very interested to see how we stack up. Once he has all of that information he is going to have a conversation with our 401(k) advisor.

Since I have his support it does seem like we could make some changes to the changes. Fingers Crossed.
This sounds very positive to me.

Would you care to list the old funds (fund names, tickers and expense ratios) for ideas on which to keep?
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Re: Motive for 401(k) advisor to change funds? Something fishy?

Post by Rupert » Fri Dec 22, 2017 5:32 pm

A lot of employers, particularly small companies, mistakenly believe that if they hire an advisor for their plan, they are off the hook re fiduciary liability under ERISA. The advisors often deliberately mislead them on this point. In fact, there is no way for an employer to completely absolve itself of potential liability under ERISA. They can share fiduciary liability with an advisor, but they can't shove the liability off on an advisor. So I suspect, OP, your boss has been misled, and I would focus my efforts on making sure he understands this. Ask him if the company has ERISA liability insurance. Most D&O liability policies specifically exclude ERISA coverage from their terms. That should start an interesting conversation within the company.

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