This article is commenting based upon the following article by Reuters on March 5th, 2018.
COMMENTARY From Ronald E. Lang, Principal – Atlas 401(k) Retirement Solutions
This doesn’t surprise our firm, nor should it surprise most of the Plan Sponsors out there, especially the ones using Fidelity. Read the article above from Reuters. This should scare you and we’re confident there will probably be a class action suit very soon (as there usually is when true facts surface). Those of you who know us and our Best-of-Breed product and service offerings, you know our feelings on Target-Date Funds (TDFs) and using Mutual Funds, especially those that are fund of funds under the same investment house (meaning a “Closed-Architecture” where you can only choose assets from one investment company). The Reuters article does a terrific job at analyzing some of their funds and essentially how it is “leaking” in fees and performance.
In the end, most investors don’t mind paying more in fees as long as the performance outperforms its peers. The Reuters article exposes how the investment houses, specifically Fidelity has not been able to live up to their expected or peer asset returns for investors and has taken advantage of investors since most don’t research their investments. Most investors unfortunately don’t ask questions about investments nor do many have the patience to understand what they are investing in for one of their most important nest eggs for retirement.
For those of you that know us are aware that we are advocates of using ETFs for your asset lineup versus Mutual Funds to reduce investment product fees despite the performance being equal to or greater than peer Mutual Funds over the same benchmark and time frames. Fidelity is the “big dog” on Wall Street, especially when it comes to 401(k) plans and retirement accounts. With our 401(k) plans we have never been able to use Fidelity as our custodian because they won’t allow ETFs in the 401(k) lineup. With this Reuters Special Report, it makes sense to us now. Most investment houses can’t make expected fees with ETFs and that is why they don’t offer them.
Everyone, please benchmark your plans, review performance of your asset lineup vigorously at your Annual Investment Committee Meetings. Remember it is YOUR fiduciary responsibility that you offer the best and most diversified asset lineup with the most reasonable fees. Despite a personal relationship with your service provider, if you do not question, document and take action on some of these issues, it could come back to haunt you and your organization.
BTW, we have no proof of this, but do you really think that Fidelity is the only one doing this? You should know that the Wall Street investment houses have been pulling these shenanigan’s for decades. You need to work with someone that understands this and has your back along with your participants in the plan.
Lastly, be smart about your approach to your evaluating your asset plan lineup and ask questions. Ask for peer asset products that are outside of their investment house. Meaning, if you are using Fidelity, ask for comparative products (or ETFs) from First Trust, Vanguard, Blackrock, Powershares, etc. to give you an example. If they aren’t willing to do this then they are at risk of their Fiduciary Responsibility to you to offer you the best and most diversified asset lineup and reasonable fees. If you don’t compare outside assets from other investment houses, then how do you know you are getting a widespread and unbiased analysis? Something to think about, ponder and take action.
Ronald E. Lang, Principal
Atlas 401(k) Retirement Specialists
Division of Atlas Wealth Management, LLC
Phone – 888.403.9400