The Frugal Fiduciary Blog

Fee Study of 525 401(k) Financial Advisors – Why Trump Can’t Reverse Tide of Fiduciary Advice

Posted by Eric Droblyen on Apr 5, 2017

This week, the DOL delayed the effective date of its Fiduciary Rule – which would define all retirement plan financial advisors as ERISA fiduciaries, effectively banning conflicted 401(k) investment advice that puts advisor profit ahead of client interests – by 60 days from April 10, 2017 to June 9, 2017.  The delay was triggered by a memorandum from President Trump that directed the agency to complete a new analysis of the rule’s likely economic impact.

As a critic of the Fiduciary Rule, it’s a good bet that President Trump ordered the DOL analysis to build a case for overturning it. If that happens, it would be a huge (yuge?) victory win for brokers and insurance agents – who are currently non-fiduciaries. According to a study from the White House Council of Economic Advisers (CEA), these advisors rake in more than $17 billion in excess fees annually due to conflicted advice.

If you are a supporter of the Fiduciary Rule like me, it can be easy to be upset by the Trump administration delay. However, I’m not worried about it. Even if this ban on conflicted retirement plan advice is squashed, I am confident the die is cast. Following several high-profile excessive fee lawsuits, more 401(k) plan sponsors than ever are hiring fiduciary-grade financial advisors to lower their liability. The kicker? Their impartial advice is often cheaper than potentially-conflicted, non-fiduciary advice. And I have the numbers to prove it!

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Topics: Fiduciary Responsibiilty, 401k fees, DOL Fiduciary Rule, Provider Shopping, 401k Studies, Financial Advice

The Top 4 Lies Told by 401(k) Providers

Posted by Eric Droblyen on Mar 22, 2017

After the death of his beloved mother, Harry Houdini was desperate to contact her from beyond the grave with the help of psychic mediums – who claimed an ability to communicate with the dead. Mediums were very popular at the time, but it didn’t take long for Harry to discover they couldn’t do what they promised. Upset, Harry became determined to expose their lies to protect unwitting customers.

Like mediums, some 401(k) providers make false claims. Their lies can easily go unnoticed to 401(k) fiduciaries due to the highly-technical nature of 401(k) services. However, believing these lies – and hiring the provider that makes them – can trigger severe consequences. They often mask excessive 401(k) fees or a lack of expertise that can increase fiduciary liability.

If you’re a 401(k) fiduciary, identifying 401(k) provider lies is imperative to mitigating your plan liability. The good news? Most are easily debunked with some basic facts.

I’d like to channel (pun intended) Harry Houdini by exposing four of the most common lies told by 401(k) providers today.

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Topics: Revenue Sharing, Fiduciary Responsibiilty, 401k fees, Provider Shopping, Plan Setup

Our Top 10 401k Blogs of 2016: What Topics Were the Most Popular?

Posted by Eric Droblyen on Dec 28, 2016

Happy Holidays from the Frugal Fiduciary! As 2016 comes to a close, we looked back through this year’s blogs to find the most read.  It turns out our most popular blogs related to the following topics:

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Topics: Retirement Plan Types, Fiduciary Responsibiilty, Safe Harbor 401k, 401k fees, Plan Design, 401k Studies

401k Fiduciary Pro Tip: Uninvested Cash Can Be a Symptom of a Bad 401k Recordkeeper

Posted by Eric Droblyen on Aug 10, 2016

401k recordkeepers are like icebergs – you can only see a small fraction of the services they provide. Behind the scenes, they can process tens, if not hundreds, of transactions every day for a 401k plan related to contributions, distributions, inter-fund transfers or fee payments. This transaction volume makes 401k recordkeeping complicated, requiring specialized expertise to do it well.

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Topics: Fiduciary Responsibiilty, Provider Shopping

What’s the #1 Reason for 401k Lawsuits?  Overpriced or Superfluous 401k Services

Posted by Eric Droblyen on May 4, 2016

In my last blog, I wrote the key virtue of the DOL’s new fiduciary rule is that it aligns 401k plan sponsor and financial advisor interests. Once the rule is effective, all advisors will be obligated to act in the sole best interest of 401k participants just like 401k sponsors. Prior to the rule, some advisors could fleece 401k plans without consequences – which often left 401k sponsors personally liable for participant losses due to excessive advisor fees.

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Topics: Fiduciary Responsibiilty, 401k fees, Provider Shopping

The DOL’s New Fiduciary Rule – the Value of 401k Investment Services Will Be More Critical Than Ever

Posted by Eric Droblyen on Apr 20, 2016

On April 6, the Department of Labor finalized its long-awaited fiduciary rule for retirement plan investment advice. Under this rule, all financial advisors to retirement plans are required to act according to a “fiduciary” standard – in other words, they must give impartial investment advice that’s in their clients' best interest. Prior to this rule, only some advisors were subject to a fiduciary standard. Brokers and insurance agents were subject to a lesser “suitability” standard.

The problem with the suitability standard is that there is practically no investment that is “unsuitable.”   Hidden fees, outrageous redemption charges, lousy performance and house funds with high commission payouts – everything is suitable and anything goes. The old standard allows for certain advisors to provide financial “products” that give the appearance of unbiased advice, but in reality represent blatant conflicts of interest.

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Topics: Fiduciary Responsibiilty, 401k fees, Provider Shopping, Financial Advice

SEC Money Market Reform Will Affect Many Small Business 401ks in 2016; 401k Fiduciaries Should Understand its Consequences

Posted by Eric Droblyen on Mar 9, 2016

Most 401k plans today offer a low risk investment option designed to maintain a constant net asset value. This option is usually a money market or stable value fund.

Recently, the Securities Exchange Commission (SEC) made changes to the rules that govern money market mutual funds (MMFs). These changes are intended to increase MMF transparency as well as give investors additional protection during periods of extraordinary market stress, when redemptions in some MMFs can increase significantly. These changes are effective October 14, 2016.

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Topics: Fiduciary Responsibiilty, Investments

It’s 401k Testing Season! What Small Businesses Need to Know About 401k Testing

Posted by Eric Droblyen on Feb 24, 2016

Each plan year, ERISA requires every 401(k) plan to complete certain tests to confirm they do not discriminate in favor of Highly Compensated Employees (HCEs) or exceed IRS contribution limits. Generally, this annual testing is completed as soon as possible following the close of a plan year. For 401k plans with a plan year that ended December 31, 2015, that means now.

While most employers hire a professional third-party administrator (TPA) to complete this work, all employers should understand testing basics to confirm all necessary tests are completed and any failed tests are corrected each year.   Otherwise, costly penalties, plan disqualification or fiduciary liability are more likely.

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Topics: Fiduciary Responsibiilty, 401k testing

Shopping For a 401k Plan Doesn’t Need To Be Overwhelming For Small Businesses; A Checklist Can Help

Posted by Eric Droblyen on Jan 27, 2016

In my experience, 401k providers are like snowflakes – no two are alike. Their services can vary dramatically in breadth, depth and price. This variability can make it difficult for small business 401k fiduciaries to select providers with services that match their plan’s needs at a reasonable price.

That’s a problem. 401k plans should not pay for superfluous services participants won’t use. Excess services can be expensive, dragging down participant returns unnecessarily. When this happens, personal liability for 401k fiduciaries can result.

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Topics: Fiduciary Responsibiilty, Provider Shopping

Happy Holidays from the Frugal Fiduciary! Our Top 10 Blogs of 2015

Posted by Eric Droblyen on Dec 30, 2015

Happy Holidays! As 2015 comes to a close, we looked back through this year’s blogs to find the most read. This process was instructive. We learned our most popular blogs were the ones written to simplify 401k administration or fiduciary requirements for employers. You can expect more blogs covering these topics during 2016.

So, in case you missed them the first time, or just want a refresher, here are our top 10 most read blogs of 2015.

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Topics: Fiduciary Responsibiilty, 401k fees, Plan Design, Thought Leadership

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