Michael is the managing partner of an engineering firm with 40 employees that specializes in high-rise commercial real estate development. He is a busy guy, but as the trustee of his firm's 401(k) plan he is well aware of his obligation to make sure the plan participant's best interests are represented, but he had always felt uneasy about their current plan provider. He could never really get a straight answer about how they were paid. The relationship between the well-known insurance company whose logo appeared on the statements, his broker, and the third-party administrator always seemed a bit murky.
He had recently been approached by one of his most trusted employees who was concerned about the underperforming funds and high fees in the plan. The concern expressed by his employee was the tipping point for Michael reaching out to Rockwood.
We sat down with Michael and his CFO and asked them what they wanted the plan to do and what it was designed to accomplish. They told us they wanted to retain and reward the most productive employees and give the plan participants a reliable place to build wealth for retirement.
Our analysis showed that his plan's current mutual funds were not admitted to the plan under a fiduciary lens in pursuit of the best interests of the employees. Instead, they were selected by the willingness of various mutual fund companies to pay "sweetener" fees to the insurance company for their funds to be included in his plan.
Michael was quick to grasp the benefits of a best-in-class fiduciary managed 401(k) over an insurance company brokerage arrangement. We then replaced the insurance company's "off-the-shelf" plan with a custom designed a 401(k) that reduced aggregate expenses by 60% and provided the employees not just with a long list of mutual funds, but instead with an offering of professionally managed risk-based model portfolios. Employees simply choose the model that fits their risk profile. Additionally, we recommended changes in plan design that allowed for more flexibility and encouraged greater employee participation in the plan.
Michael felt much better about fulfilling his responsibility as a trustee to the plan and its participants. He was able to provide them with professional investment management, continually rebalanced risk-based portfolios, and help them keep more dollars in their accounts by dramatically reducing plan expenses.
Financial Planning and Investment Management for Prosperous Individuals, Families, and Institutions.