There is an elephant in the room. 401K plans hold over $3 trillion and sadly, they cost way too much, participants don't get what they really want and need, while an awesome opportunity grossly underachieves.

Choice, Choice and Less Choice

If there is anything I know with absolute certainty, it's that people (that's another word for plan head counts) don't want endless investment choices (when do people actually like endless choices of anything). They want active, professional management. Yet the trend is toward ever more choice. And they want support, i.e. live people sitting with them, emailing with them and guiding them.

You're Paying All That Money For What?

If you opened a brokerage account today with any modest amount of money you would pay no annual fee and you (and the right advisor, if any) would have access to every publicly available investment. At Fidelity, that would include over 5,000 mutual funds with no loads or commissions. That opportunity pertains in the 401K world as well! Why do some plans place everyone's money in a single account and then pay an ungodly sum to have it sorted out?

The Other Side of the Equation

Of course, on the other side is a financial institution that wants to capture assets and hold on to them. Out of those suspicious sources you will inevitably find "solutions" that include layers of fees (some you may not even be fully aware of), bundled "turnkey" packages and endless overlapping investment choices; while excluding the type of personal support, power and active management that people want and need.

What Would the Perfect Plan Look Like?

• Everyone has an individual account with access to every imaginable investment.
• The plan looks simple to the participant but is sufficiently diverse and flexible for the advisor.
• Every account is managed professionally to an investment profile, example "aggressive", "moderate", etc. People can make simple choices while the advisor makes the complex ones.
• The financial institution just provides the accounts - something they already know how to do and don't need to be paid for. I prefer Fidelity.
• A local firm handles compliance for a very modest fee. The biggest overhead item, recordkeeping, goes away through individual accounts.
• The advisor's fee is very modest and very visible because the plan dollars are large and there are real economies of scale. Kay Investments will receive a fraction of a percent of plan assets per annum and aggressively pursue the strategies discussed elsewhere on this site.
• The plan is owned by the sponsor and the participants, not the financial institution. All the parts of the puzzle - custodian, investments, administrator, advisor - are interchangeable and easily replaced.

 

Kay Investments, Inc.

5000 Seneca Point Road
Canandaigua NY 14424
585-396-1312 (phone)
585-486-1312 (fax)
darrellkayinvestments.com (email)