Retirement Plans

Fund Families Sued by Their Own Employees Over their Retirement Plans??

August 24, 2016 by Michele Suriano

Over the past two years, a number of investment firms have been sued by their employees over their 401(k) plans. That’s right! Investment firms have been sued over their own in-house retirement plans! Why? In most cases, these firms would only provide proprietary funds to their employees at a full or slightly reduced cost. In fact, here are just a few of the recent cases from the past two years:

1. Transamerica
2. Fidelity Investments
3. Ameriprise
4. New York Life

5.Great West (Empower)
6. MFS Investment Management
7. Waddell and Reed
8. Allianz Global Investors
9. MassMutual
10. Neuberger Berman
11. Putnam Investments
12. BB&T
13. Edward Jones
14. Morgan Stanley
15. American Century

Why do these investment firms offer their own funds to their employees without significantly lower fees? First, they do not want to convey to their employees that there are potentially superior investment opportunities outside of the company. For instance, Fidelity might not want to offer an outside fund that could be cheaper and possibly better performing than a comparable Fidelity fund. Additionally, since these plans tend to be very significant in size, reducing investment fees for their own employees could be problematic, since it could potentially increase fees for their retail investors to absorb the cost.

Is there a solution to this dilemma? Yes, there actually is! For the investment firms that are currently offering their proprietary funds to their employees without reduced expenses, these firms should consider offering outside funds to their employees. This could potentially result in lower expenses for the employees. Furthermore, this could remove the target off their backs from ERISA once the DOL regulation becomes effective in April of 2017. Of course, this is a lot easier said than done because it requires investment firms to expose their weak spots in their investment line ups, which could also potentially leak out to their retail investors. Also, a retirement plan was never meant to make the employer money, it is supposed to be a generous benefit for its employees.

With the new DOL regulation coming in April 2017, 2016 has proven that broker dealers and investment advisors are not the only target, but the fund families have also been dealing with quite the roller coaster themselves. And, as retirement investors, we should be glad that the investment business is starting to clean up its act for good and will in return make the industry more beneficial for everyone.

How to Get the Most Out of Index Funds

August 1, 2016 by Michele Suriano

By Mack Bekeza

Although index funds can be an excellent choice for retirement investing, many people do not have a complete understanding of how they work. Before we get into the main topic, let’s get some facts straight about what these funds have done historically.

Over the long term, have index funds outperformed the large majority of their active cohorts? Yes!
Are index funds a much cheaper way to invest than actively managed funds? Yes!
So, just because someone is only invested in index funds, have they significantly reduced their portfolio risk? Well… not exactly.

Being able to understand the risk of an index fund has been difficult for some investors, simply because they do not have a complete understanding of what they are invested in. For instance, a study conducted by Natixis, found that 64% of investors believe that index funds will help minimize investment losses. Natixis also found that nearly 7 out of 10 investors believe that index funds “provide the same access to the best investment opportunities in the market.”[1] Is this true? Again…not exactly. So, how can investors reduce investment losses with index funds? The simple answer is through diversification.

Diversification, or what is known to academics as the only free lunch in investing, is simply investing across different asset classes (stocks, bonds, cash, etc.) and across numerous regions around the world (i.e. domestic funds and international funds). As a result, investors reduce risk by having funds that do not all go up and down together. For example, let’s take a $1,000 portfolio that has 50% invested in a stock index fund and 50% invested in a bond index fund. If the stock index fund loses 2% in one year and the bond index fund gains 4%, the portfolio has increased by 1%.

So why doesn’t the portfolio go up 2% if it has a 50/50 split between stocks and bonds? Well… let’s find out. At the end of the year, the $500 that was in the stock fund turned into $490 and the $500 in the bond fund turned into $520. If we add them together, the portfolio is now worth $1,010, a 1% gain. Diversification is meant to be used to reduce risk and stabilize the portfolio. And, if you diversify with index funds, you have found a way reduce risk while saving money!

[1] Here is the article about the study: httpss://www.planadviser.com/Investors-Miss-Much-of-the-Subtlety-in–Active-vs-Passive-/

The People’s Best Interest…The Battle Continues

July 21, 2016 by Michele Suriano

The official ruling for “fiduciaries,” meaning people who are legally bound in the best interest of retirement investors, will not take effect until April of 2017. However, the Department of Labor (“The DOL”) has been bombarded by lawsuits. This brings us to the recent filing from the National Association for Fixed Annuities (“NAFA”) in June 2016 with regards to how the ruling is defining a “fiduciary,” along with other material in the ruling.

Before we get into what exactly NAFA is complaining about, let’s review how the DOL defines a “fiduciary, which is:

“Any person who exercises any discretionary authority or control respecting the management or disposition of its assets or has any discretionary authority or responsibility in the administration of the plan” as well as “any person who renders investment advice for a fee”. [1]

So, what exactly is NAFA complaining about? According to them, “Congress intended ERISA fiduciary duties to apply only to those who participate in ongoing management of a plan or its assets.” As we mentioned in the previous paragraph, this is not the case. NAFA completely disregarded that fiduciaries are those who render investment advice for a fee. Put it this way, an annuity can play a large role in someone’s retirement, so how would selling annuities to people not be considered rendering investment advice?

Another claim made by NAFA was in regards to how the DOL is allegedly “exceeding its authority by imposing ERISA fiduciary obligation on parties to transactions involving IRAs.” Again, NAFA has it wrong. Although investment advisors to IRAs are considered fiduciaries, those individuals are not subject to the same scrutiny that an ERISA fiduciary would be.

This case is an excellent example of how people who work in the commission-based side of the financial services industry are trying to keep their industry alive. They realize that (as of late April 2017) their ways will no longer work for them in the marketplace, so they are desperate to fight this. Keeping things how they are now can lead to many retirement investors losing billions of their hard earned dollars from commissions and expensive products.

Attached is a link to the article that we used as a reference. And, for those who want to see the DOL’s official response to NAFA, click here! However, just a warning, the official response is about 105 pages long.

[1] As a note, Castle Rock Investment Company falls under the DOL’s definition of a fiduciary for both ERISA plans and IRAs.

Water Cooler Wisdom: Second Quarter 2016

July 7, 2016 by Michele Suriano

Is the U.S the only place for long term returns?

Although the United States has experienced one of the best bull markets in terms of duration and returns, investors have been wondering what is next. This past year has not been as invigorating as the prior few years and, on top of that, economists are predicting U.S GDP growth to be at around 1.5% for the next few years. You may have also been hearing from either presidential debates or that “one guy” at the bar that everything is going down the tubes and that we have seen our best days. Are they right? The answer is, we do not know.

What we do know is this, even though the U.S is still considered the safest place for investors, that doesn’t necessarily mean we should only be invested in American securities. Did you know that the rest of world accounts for 95.5% of the human population, nearly 75% of the global GDP, and nearly 60% of the total stock market? On top of that, international securities are not perfectly correlated with the U.S markets so they can be used as a very effective diversification tool for people of all age groups and time horizons. So why don’t people invest outside of the U.S?

There a couple of reasons:

Many people have a bias towards their home country
Many people fear that investing internationally is unbearably risky

To respond to those two reasons, there is nothing necessarily bad about being biased toward your home team but there is also nothing wrong with tapping into other developed countries and even emerging markets such as China and India to name a couple. And for people fearing that going international is overly risky, that is not necessarily true. Although volatility is more prevalent, that does not mean that international securities are a sure way to lose money. In fact, it is the volatility that will allow more buying opportunities which in turn can boost returns for people like you and I.

So despite what happened this past quarter (Brexit, continued negative interest rates in Europe, along with current slow global growth), we should still expand our horizons into the international markets and tap into the opportunities they present.

Attached are a few slides about global markets for the past quarter.

Why You Need A Budget

June 30, 2016 by Michele Suriano

Budgeting sounds difficult, right? Well actually, not really. In fact, it is even more difficult not to maintain a budget. Many people think they don’t need a budget, but end up broke by the time their next paycheck comes in. This can lead to a never ending cycle of not having any money left over and not being able to accomplish financial security, which is never fun!

Budgeting is very important to not only maintain financial security at the homestead, but it can be a very powerful tool to help reach your goals like saving for a house, retirement, and even a nice vacation every now and then. If you are curious on how to get started, check out these tips.

When starting your budget, it is important to pay yourself first! In other words, make sure the first thing you do when you get paid is to deposit a small amount into your savings. This can be used to fund a rainy day fund, a home improvement project, contribute to your retirement accounts, or preferably, a combination of those.
Once you have “paid yourself”, budget towards the expenses that don’t vary like rent, insurance, utilities, etc.
Next (and here comes the part that can help you big time), it is time to budget for things that are more discretionary like groceries, eating out, clothes, subscriptions, and much more. Easy targets for this include eating out and shopping. Typically, these two things are what people spend way too much on and end up not being able to pay some important bills or even save. Before setting goals for this part, make sure that you are able to figure up how much you spend on these items by looking through bank statements. This will help give you a clear view on what you can cut back on. For instance, if you figure out that you spend an average of $500 a month eating out and only $200 on groceries, set a goal to cut back on eating out and spend a little more on groceries. This alone can save you hundreds of dollars a month, which can go towards your savings goals!

Now that you have a basic idea of how to budget, are there any tools that can help you? Yes! There are plenty of free or low cost budgeting tools that can help you accomplish this rather quickly. For instance, Mint.com is an excellent and free way to track and manage your expenses. Another one includes YNAB.com, a.k.a you need a budget. For as little as $5 a month, you can have access to an exceptional budgeting tool that allows you to have access to a user friendly mobile app as well.

Hopefully you take these tips to get your finances together and accomplish big goals… now get to budgeting! Also don’t forget to follow us @Save4Youself to get more tips for your finances!

White House Memo: A Moment of Opportunity for Fiduciaries to Retirement Plans

February 5, 2015 by Michele Suriano

Famous showdown between "Fast Eddie" Felson and “Minnesota Fats” in the iconic American film, The Hustler — Showdown between “Fast Eddie” Felson and “Minnesota Fats” in the iconic American film, The Hustler

If you think we’re letting go of the “fumbling children” reference made by FSI chairman Adam Antoniades, you have another thing coming. He reminds me of the proud “Minnesota Fats” character in the classic film The Hustler— he doesn’t want to recognize the truth and talent of the situation he’s faced with by “Fast Eddie” Felson (Paul Newman), because it means that his reign as best player has ended.

Mr Antoniades goes so far to call the leaked White House Memo from January 13 simplistic, though it refers to more PhD studies than his fumbling response could even spell, so he’ll have to try and respond again.

The decidedly complex datasets referenced from such luminaries as Dr. Christoffersen et al (hundreds of academic citations through Google scholar as of yesterday), Dr. Chalmers, Dr. Del Guernico, Dr. Reuter, Dr. Gerstresser, Dr. Gennaioli, Dr. Morey, Dr. Hackerthal, Dr. Jappelli, and more are better than the “old people better look out” response because these people have been researching for years and have more academic standing than he can pretend to. There are case studies of other countries. There are case studies of firms engaged in forward-thinking practices. There are datasets (thanks to afore-mentioned Dr. Christoffersen — one of whose citations include an impressive Duke PhD thesis based upon his work — and several researchers who chose to follow his research out of their own volition).

The argument that the data is too complicated to change doesn’t apply here. There is complicated data on both sides of this argument. Smart people argue on both sides, granted, but the “its too hard” argument is not a sufficient response for anyone to carry off anymore because it makes you sound lazy and entrenched, not smart.

Please, sir, prove your vast intellect with a well-researched paper of any kind that isn’t just a pat on the head and a “you wouldn’t understand.” Stop talking down to your audience. Consumers want legitimate legal protection, and the White House wants to help them avoid the estimated $6 – 8 billion (35 – 50 bps) loss experienced by the average consumer per year from these financial advisors who use high-quality data, but have conflicts of interest. That means, this is a minimum estimated loss to consumers.

Beyond the academics and case studies provided in the memo dismissed as “simplistic,” Mr. Antoniades goes on to discuss the danger to the elderly should the 1975 loose ruling be constrained to oblige investment advisers to eliminate hidden fees.

Memo says:

Consumer protections for investment advice in the retail and small plan markets are inadequate
Current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year

To be more exact:

“An investor receiving conflicted advice who expects to retire in 30 years loses at least 5 to 10 percent of his or her potential retirement savings due to conflicts, or approximately 1 to 3 years’ worth of withdrawals during retirement.” (page 2 of the Memo)

We met a nice group of plan administrators earlier last year who were baffled by revenue-sharing built into their record keeping service agreement before we began to work with them – they had lost hundreds of millions of dollars on a plan where the low returns looked like an effect of poor investing. They were public servants, thus a government plan was duped by a private company, folks! Say what you will, but the law will change if this continues to happen. The government does not like to lose.

And if the government isn’t able to win, chances are, small businesses aren’t able to figure out a way around it either. In fact, they aren’t. Even with the best quality data, when investment advisors have conflicts of interest, retirees lose years of retirement savings according to one of the most extensive studies on the matter (Dr. Christoffersen et. al. 2013).

That’s what the White House is talking about changing – and what the entrenched benefactors of the old system, aka “Minnesota Fats”, want to avoid. The old system wants to hold off the new talent in the financial arena so they can have just one more eleventh hour.

Don’t we want to a better system to retire on?

Demand a higher fiduciary standard and go to SaveOurRetirement.com to sign the petition.

Michele L. Suriano, Accredited Investment Fiduciary™, is president of Castle Rock Investment Company, a woman-owned SEC registered investment advisory firm serving qualified retirement plans. www.CastleRockInvesting.com

Declaration of Independence

February 3, 2015 by Michele Suriano

“Can you be more specific?”

Embarrassing, but true: the retirement industry is asking that of the US government.

The definition of a Fiduciary needs to be more specific because of cases where Plan Sponsors are legally charged unreasonable fees for a long time, but the Department of Labor’s interpretation is undesirable to Wall Street. Of course, Wall Street is on the receiving end of these unreasonable fees.

As an investment advisory firm who identifies in writing as a fiduciary to our clients, we uphold the interests of our client above those of any other interest, because we have no other interested parties. The unfortunate reason that other investment advisors will not agree to sign a fiduciary agreement with a client is because they are “promised” to a large company, who profits from a retirement plan through hidden fees.

While the Plan Sponsor is unaware of this other agreement, and often the Investment Advisor is not entirely upfront about this agreement with the Plan Sponsor’s representatives, it comes out in the end through hidden fees and a whole mess of ugly policies.

The sort of game run here should be illegal. Not because the Plan Sponsors are not careful, instead they often are smart and diligent, but because they are simply not protected by the law. Up to this point, the law is unclear. The Independent Advisor they supposedly hire is not, after all, independent according to a stricter definition now proposed by the Department of Labor, led by Phyllis Borzi.

Insist upon a clear definition of an independent advisor so that you know your advice comes for the interest of your retirement plan, and not for the interest of someone else’s quasi-legal activity. Sign the petition at httpss://www.thepetitionsite.com/414/401/760/tell-washington-to-stand-up-to-wall-street/

Risk Management: Employee Retirement Plans

January 23, 2015 by Michele Suriano

Risk Management Castle Rock jumps through hoops to be among the best investment advisors. Not every investment advisor goes through the same rigorous training because these hoops are not legally required. We do not think that making best practices a legal requirement will diminish our status as one of the best firms around, but we do think that selecting an investment advisor should be less risky for Plan Sponsors.

You are supposed to be careful of sales pitches that avoid using the term “fiduciary” but stress “education” instead, because those are not interchangeable services. The difference between these services would be like exchanging accounting for bookkeeping services, or medicine with surgery, or heads with tails in a coin toss. Providing education does not negate a need for a fiduciary; rather, a fiduciary investment advisor should be around for cases where education does not meet the plan’s needs, and an expert opinion is necessary.

How confident are we that Castle Rock is the place to turn? We are the best retirement investment advisor around. You can check our About Us section to be sure, or better yet Contact Us.

Our qualifications exceed all of these expectations, but you may want to check to see if your own advisor is able to eliminate some of the risks to you as a plan sponsor[1]:

At least 50% of assets under management in qualified retirement plans (ours are 99%);
Has an Accredited Investment Fiduciary™ or similar designation;
SEC Registered Investment Advisor (RIA);
Make sure your advisor has been working in the industry for at least a decade;
Get a fee agreement that clearly states how the fees will be charged; and
Make sure that fiduciary status is in writing.

To show your support for conflict-free advice in all retirement plans, please sign the petition here at: httpss://www.thepetitionsite.com/414/401/760/tell-washington-to-stand-up-to-wall-street/

Fund Families Sued by Their Own Employees Over their Retirement Plans??

How to Get the Most Out of Index Funds

The People’s Best Interest…The Battle Continues

Water Cooler Wisdom: Second Quarter 2016

Why You Need A Budget

White House Memo: A Moment of Opportunity for Fiduciaries to Retirement Plans

Declaration of Independence

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