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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 3/8/13

March 11
00:10 2013

1020805_25983300_Trending_Topics_2013.03.11_stock_xchng_royalty_free_300Welcome to Trending Topics. Each Monday, we’ll give you a quick synopsis of the major news events and trends impacting ERISA plan sponsors, 401k fiduciaries and those in the business of supporting these fine folks. If you smile when you read these entertaining snippets, well, that’s the idea. If you think we’re missing something important, then please let us know. But, note this well, we avoid press releases masquerading as news stories (even though they might be reported by journalists) as well as mass media pabulum that merely mouths investment myths and mistakes.

FiduciaryNews Lead Story:
Why 401k Investors Chase Performance – and How to Prevent It,” (, March 5, 2013). The sin of recency consumes far too many investors. How can they help themselves?

Compliance – The Antonym for “Government” is “Clarity”:
Sometimes you just have to wonder if we wouldn’t just be better with the old-fashioned Wild West and no sheriff. We jest. But when the sheriff gets consumed with paperwork, is he still a law and order man, or is he simply a mindless bureaucrat?
Advisers can accept rollover business from plan participants – sometimes,” (Employee Benefit Adviser, March 4, 2013) Marcia Wagner offers a simple 3 way test that allows fiduciary advisers to accept outgoing IRA rollovers from the plans they provide fiduciary services to.
Limiting 401k subsidies: Smart deficit reduction or dumb double taxation?” (BenefitsPro, March 4, 2013) Guess which one the author picks.
Tax Reforms to Loom Over 401k Plans in 2013,” (, March 5, 2013) More of the same. Retirement plans are in the crosshairs. We hear Canada is building a bridge or tunnel to Detroit. Wouldn’t it be easier just to sell Detroit to Canada? Just kidding, our many Motown readers.

Fiduciary – SEC Draws Equal Ire:
And this is just the beginning. Even as it asks for comments on its Fiduciary Standard policy making, the SEC has begun to resurrect its old 12b-1 initiative (see next section). Could it be the two are linked? Now where would they get that idea from?
DOL’s fiduciary proposal could rankle reps,” (InvestmentNews, March 4, 2013) Are these articles tea leaves? The ruling is not expected until the summer, so what does it mean that we keep seeing articles like these? Are they red herrings? Are they idea tests? Are they just peer bloviation?
SEC idea for harmonization a ‘disaster’ for advisers, says industry advocate,” (InvestmentNews, March 4, 2013) Is the SEC about to throw a monkey wrench into the works? Some fear, rather than respecting the 70+ year tradition of the Investment Advisers Act, the beleaguered agency will undertake requirements that will treat advisers more like brokers. At the same time, the tradition of the fiduciary standard will be replaced by disclosure. Bottom line: Willie Sutton gets a pass at the teller’s window – as long as he’s got a note disclosing the fact of his furtive desires.
The Fiduciary Principal,” (BenefitsPro, March 1, 2013) Here it is in a syllogistic nutshell: Despite all the rhetoric, despite all the politics, despite all the lobbying, a fiduciary cannot engage in self-dealing. Accepting 12b-1 fees is self-dealing. Therefore, a fiduciary cannot accept 12b-1 fees.
Why IRA consolidation makes even more sense,” (BenefitsPro, March 6, 2013) Odd. For an article that seems to be in favor of the DOL’s attempt to include IRA plans under the ERISA fiduciary umbrella, it only mentions the (suspect) research of those opposed to such a move. It fails to mention the high costs – verified by true independent researchers – conflicts-of-interest cause to investors.

Fees – On to Plan B:
OK, so the idea of disclosure doesn’t seem to be working as expected. The next step is to do what should have been done in the first step – look at those nasty conflicts-of-interest that pop up whenever you have a self-dealing transaction. This is the only way to get to the root of the problem.
DC Disclosure Rules Do Little to Improve Participant Knowledge,” (On Wall Street, March 5, 2013) Now that all participants are required to receive full disclosure on the fees they’re paying in their 401k plan, guess how many don’t know what fees they’re paying. Does it surprise you to find out the answer is 50%? Does it surprise you to discover this is the exact same percentage that didn’t know before fee disclosure was required? Now, who still believes fee disclosure helps? Well, we mean help the investor, not the vendor.
Fee disclosure had little impact on DC plan participants,” (BenefitsPro, March 6, 2013) Another take on the above article with more interesting stats.
Retirement plan advisers undercharging: Panel,” (InvestmentNews, March 7, 2013) You can be cynical about this, relativistic about this or simply take it at face value.
SEC to examine mutual fund distribution fees starting next week,” (InvestmentNews, March 8, 2013) From the article: “The SEC has made reviewing fees — including revenue sharing, sub-transfer-agent, 12(b)-1 and conference support — an examination priority this year. Regulators are concerned that the payments could be used to give certain mutual funds preferential treatment and raise costs for investors.” Ya think?

Investments – Lemmings do as Lemmings do:
Here’s a great lesson from nuclear physics. There’s this notion of “half-life.” The concept is very simple. Over a certain time period, one particular atom of an element has a 50% chance of “decaying” into an atom of another, completely different, element. That means, given a volume that contains 1,000 atoms of this one particular element, after a certain time period, there will remain 500 atoms of the original element, but also now 500 atoms of this completely different element. That’s the average of 1,000 atoms. But no one knows or can predict what will happen any one specific individual atom. That, in a nutshell, is the danger of any market analysis that looks solely at index averages.
‘Lost decade’ not over for 401k plans, IRA plans,” (MarketWatch, March 5, 2013) The article complains, now that the market has recovered its 2007 highs, retirement plans are no better off. They were roughly $9 billion at the peak and a little over $10 billion at the end of the third quarter 2012. It’s funny, CNBC just used this same data to show how the retirement plans recovered more quickly than the market (at least the Dow, the S&P 500 still hasn’t fully recovered). And this doesn’t even address the many mutual funds that broke new highs as early as 2011. We think the article should have focused on the change in asset allocation since 2007 and how dumping stocks hurt retirement plan investors. Incidentally, the same ICI report referenced in this article shows the percentage invested in equity funds dropped from 48% in 2007 to 39% in 2011.
Investor behavior redefines ‘dogs of the Dow’,” (BenefitsPro, March 7, 2013) This one’s all about chasing performance, with a neat canine metaphor.

Major Plan Sponsor Moves and News:
What are other plan sponsors and fiduciaries doing with their plans? And how are participants responding? The latest in legal proceedings involving plan sponsors and fiduciaries.
Have 401k Plans Failed Investors?” (AdvisorOne, March 3, 2013)
401k Summit kicks off,” (BenefitsPro, March 5, 2013)
401k plans need work, but are far from failed experiment,” (Employee Benefit News, March 6, 2013)
401k savings rates get a boost from the boss,” (MarketWatch, March 6, 2013)
More Employees Embrace 401k Plans: BofA Merrill Report,” (On Wall Street, March 7, 2013)
Reports of the death of retirement savings greatly exaggerated,” (InvestmentNews, March 7, 2013)
Are employers with auto-enroll 401k plans less generous?” (Reuters, March 7, 2013)

Wisdom from Some of Our Favorite Blogs:
The Trusted Advisor: Uncovering the Hidden Fees in Retirement Plans |
fi360: Fiduciary Links: Announcing the fi360 Article Competition, and the Fiduciary Survey |
The Chicago Financial Planner: 3 More Financial Products to Avoid |
fi360: The Next Step to a Uniform Fiduciary Standard—What Can You Do? |
The Chicago Financial Planner: Friday Finance Links March 8, 2013 – Late Winter Edition |

Hot Tips from Popular Web Resources:
RIA Central: 5 Reasons to Be Happy You’re a Fiduciary |

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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