401K’s Again
I found this really nice Frontline documentary about the 401K industry. It fits nicely and expands on my previous post. I think that piece speaks a lot more eloquently than me. I suggest you take a look. This is well worth your time.
This highlights the following widespread flaws of current 401K’s
- Obscure fee structure. Who is paying what, what for?
- Biased advice. Fees that are charged to suit the benefit of the adviser, not the investor.
- Expensive actively managed funds.
- Lack of support in composing a portfolio from the funds that are offered.
The current system is a mess, profit driven financial firms simply push the boundaries as hard they can get away with, for their own benefit. In a sense this is what happens in every segment of a capitalistic system. The interest of the investor is defended in two distinct ways:
- the regulatory power of the government
- the free flow of information.
Starting at minute 40’ of the documentary, the valiant response of your (US Federal) government is displayed. The financial regulation voted in the aftermath of the 2008 crisis includes an attempt to bring clarity to 401K fees (the insurance and brokerage industry lobbies kicked yelled screamed and threatened their heart out in opposition to it), another attempt to expand fiduciary duty has been thwarted. At minute 45’30 of the documentary you will see the “honorable” congressman from Illinois explain that “We don’t need this” which would be funny if it wasn’t a cartoonishly immoral manipulation by special interests, or perhaps an ideological stance. The entrenched interest is strong and well organized. I don’t think that there will be meaningful changes to the current regulations in the near future.
But the good news is that even if the government fails in some of its regulatory efforts, employees and employers can simply insist on getting what is in their interest. Clear information about fees is now mandated by the government. The “Fiduciary” label may not be adopted by the industry at large, but the legally binding Fiduciary function exists and you can insist on it. As long as costs and responsibility are made clear the 401K providers can choose for themselves. What I am really opposed to is giving 401K providers the ability to pretend they endorse fiduciary duty if they don’t. In the 90’s fiduciary duty advisers took advantage of the emerging digital trading platform and invaded the individual investor market by providing cheap trades and fiduciary unbiased advice. Merryl Lynch and other brokers denied the usefulness of both, all the way to their grave. If the brokers and insurance companies want to play that same defensive game with the 401K market, I believe it will lead to their demise.
Anselme Capital offers low and transparent costs, conflict free fiduciary duty, passive funds, and broad diversification preset portfolios complemented by personal advice. I believe these features will prevail in the 401K market of the future.
Cheers
Marc Anselme
This is the lift of La Grave (France), with the gorgeous peak of La Meije in the background, probably the largest off track ski domain in the world. No grooming, no interdiction, no ski patrol policing, but very good weather and snow condition information and plenty of available certified mountain guides. Ski at your own risks, or hire a guide to choose itineraries fit for you, a market with little regulatory interference if you will, but with very good information tailored to you. That clear sense of danger and personal responsibility has led to remarkably few accidents.
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Originally published at anselmecapitalblog.com on May 03, 2013.
