Fiduciary Formula (eBook)

6 Essential Elements to Create the Perfect Corporate Retirement Plan

Josh Itzoe (Autor)

eBook Download: EPUB

2020 | 1. Auflage
260 Seiten
Lioncrest Publishing (Verlag)
978-1-5445-1521-2 (ISBN)

Infos

Are you the decision-maker for your company's retirement plan? In legal-speak, that's known as a fiduciary, and it's a heavy responsibility. In fact, you're probably aware that you're personally liable for your decisions, and you've probably heard all the horror stories about lawsuits against companies like yours and people like you. You may also be facing immense pressure from your employees and coworkers, who are trusting you to make decisions about their retirement future. Meanwhile, you're being bombarded by hordes of slick salespeople spouting confusing technical jargon. But the 'f-word' isn't a responsibility you should fear. It's one you should embrace! That's where The Fiduciary Formula comes in. This simple, easy-to-understand guide teaches you how to build a retirement plan your company can be proud of. Covering everything from plan design, fees, and investments to participant support and provider management, The Fiduciary Formula is your roadmap for making successful decisions for your company and the people you care about.

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Are you the decision-maker for your company's retirement plan? In legal-speak, that's known as a fiduciary, and it's a heavy responsibility. In fact, you're probably aware that you're personally liable for your decisions, and you've probably heard all the horror stories about lawsuits against companies like yours and people like you. You may also be facing immense pressure from your employees and coworkers, who are trusting you to make decisions about their retirement future. Meanwhile, you're being bombarded by hordes of slick salespeople spouting confusing technical jargon. But the "e;f-word"e; isn't a responsibility you should fear. It's one you should embrace! That's where The Fiduciary Formula comes in. This simple, easy-to-understand guide teaches you how to build a retirement plan your company can be proud of. Covering everything from plan design, fees, and investments to participant support and provider management, The Fiduciary Formula is your roadmap for making successful decisions for your company and the people you care about.

Textauszug

Chapter 1

1. My Story

I began working with 401(k) plans in late 2006, not long after we started Greenspring Advisors, a fee-only registered investment adviser (RIA). We structured the firm as a pure RIA with no broker-dealer affiliation and dropped all our securities licenses, allowing us to sell products and receive commissions or any other “indirect” compensation.

This was a rare business model in the industry at the time, but we gravitated to it for a very important reason—to work only on behalf of our clients with no compensation-related conflicts of interest. The prevailing model was to be a “fee-based” advisor, who could both charge clients fees and receive commissions on the sale of products, like stocks, mutual funds, annuities, and other insurance products. There were two problems with this approach. First, it created significant conflicts of interest, pitting the advisor and the client in an adversarial relationship. Second, these conflicts made it impossible to work only as a fiduciary to clients.

Let me share an example to illustrate the problem. Assume a client came to me with a $1 million portfolio they wanted me to invest for them. If I wasn’t a fiduciary and didn’t have a legal obligation to work in their best interests, I could recommend two different but comparable products. Product A had higher expenses and paid me a 5 percent commission, and Product B had much lower expenses, so it only paid me a 1 percent commission.

You can see the conflict and dilemma. I could recommend Product B and make $10,000 ($1 million × 1 percent) or Product A and make five times that amount, or $50,000 ($1 million × 5 percent)! Even though the higher-cost product wasn’t best for a client, which one was I incentivized to sell? Back then, fees were rarely disclosed or discussed.

We started the firm to avoid these types of conflicts, to be objective, and to work only as a fiduciary to clients. It also meant we had to disclose all our compensation. We were confident our clients would appreciate our independence and transparency. Knowing our advice was only merit-based and in their best interest immediately built trust with our clients.

We spotted this trend early, and it’s worked well over the past fifteen-plus years. We’ve grown from a team of two people managing about $15 million in assets to twenty-five employees advising assets of more than $4.5 billion at the end of 2019.

When we started the firm, we only worked with individual clients, providing comprehensive financial planning and discretionary portfolio management. Several private clients at Greenspring were small business owners. As part of the financial planning process, we would check the investment options in their 401(k) plan. From what I saw, these options were a mess. They were almost always actively managed and expensive. The menu of options looked like there wasn’t any intelligent, thoughtful design to them either. Digging into the fees, there was little transparency as well. It was challenging to determine the true costs, and the conflicts of interest I saw were frightening.

Feeling like our fiduciary model and passive, index-focused investment philosophy we used for our clients could disrupt the 401(k) space, I recognized an opportunity. I thought I might even build a successful retirement plan consulting practice. So my co-founder Pat Collins and I agreed that I would focus on trying to find 401(k) opportunities. There was only one problem: I had no real experience.

Before Greenspring, I worked for one of the largest brokerage firms in the world and worked with a single 401(k) plan. I knew nothing about these types of plans and didn’t understand what I was doing. I’ve come a long way since then, and so has Greenspring. Back then, it was 2006, and few advisory firms were promoting the concept of fiduciary responsibility. I believed we could use this to differentiate ourselves since it was a cornerstone of our firm. I began to ask lots of people in the industry what they knew about ERISA fiduciary responsibility. Few people had more than a cursory knowledge of the concept. One afternoon, I printed out the entire ERISA regulation and read it over a weekend. This solidified my belief that most people had no clue what it meant to be a fiduciary.

I came across Fred Reish, one of the retirement industry’s most well-known ERISA attorneys and read everything I could find that he’d written. About six weeks later, I had developed a solid foundation of fiduciary knowledge. And I realized I knew much more than most people I came across.

I developed my philosophy on what a successful retirement plan looked like. It began with the idea that every great retirement plan started with a strong retirement committee and a sound fiduciary process. That’s because these were the people who controlled almost every important retirement plan decision in a company. Employees had little control—only deciding whether to participate, how much to contribute, and which investments to choose based on a handful of preselected options. Otherwise, the plan fiduciaries made all the major decisions. They selected the investments, determined the fees, chose the plan features, and hired the vendors who supported the plan. Yet I found few companies that had a strong, formal retirement committee and a comprehensive governance process in place.

In most cases, the prospective clients I came across didn’t know what they didn’t know. I sensed an opportunity. My mission became helping companies create high-performance retirement committees. I began discussing things like a committee charter, fiduciary appointment letters, fiduciary training, an investment policy statement (IPS), meeting minutes, analyzing and benchmarking fees, eliminating revenue sharing, centralizing and storing plan documentation, and how an ERISA 3(38) fiduciary could help reduce risk.

My story was so different at the time (remember this was 2006) that few companies could understand it. Or perhaps I wasn’t very good at telling it! Either way, I was dealing with a lot of rejection and often wanted to give up.

At one of my low points, I walked into Pat’s office ready to throw in the towel. Pat talked me off the edge, and I’m so glad he did. I said I would write a book. He kind of laughed and asked me what I would call it. I said, “Fixing the 401(k) because this industry is broken!” I don’t think he believed I would follow through on it, but that night, I went home and got to work, creating an outline. Over the next several months, I wrote on nights and weekends.

In August 2008, Fixing the 401(k): What Fiduciaries Must Know (And Do) to Help Employees Retire Successfully was published. That is still the single greatest investment I ever made in my career. It also helped set us on the course to where we are today. I immediately sent copies to three companies I had been prospecting for close to a year. Within a week, all three agreed to become clients. I began to speak at conferences around the country and to various groups, jumping at any chance I had to tell my story. Slowly, we started to build a client base.

In 2009, I made a good friend named Todd Lacey at an industry conference. Todd owned a similar firm in Athens, Georgia, called The (k)larity Group. We became close quickly and even kicked around the idea of merging our firms but held off. In late 2010, Todd texted me one night, asking if I wanted to buy his firm because he was taking a job with a top recordkeeper. In early 2011, we bought The (k)larity Group, adding an employee and about twenty-five plans. Suddenly, our client total was up to forty-five.

Later that year, I hired Matt Cellini. Matt had no retirement industry experience at the time but has now become one of the top advisors in the country. He’s a partner at Greenspring, a gifted advisor, and a huge driver of our team’s growth. In 2017, we added Greg Hobson as a partner and board member. Greg came to us from a large firm and has been a well-respected advisor in the industry for more than twenty years. He has become an integral part of our firm and success. I’d be remiss not to highlight the other members of our institutional team who have been a huge part of our growth, including Lauren Gwinn, Christian Stanley, Reiley Crosby, Molly Burton, Zack Hubbard, and Khaalid Kamara. They are a talented, passionate, and knowledgeable team that goes above and beyond for our clients every day. I am proud to work with them.

Our institutional team now serves as a fiduciary to more than 115 plans. We advise clients on more than $3.6 billion in plan assets and serve the needs of close to 50,000 participants. On multiple occasions, we’ve been recognized as a PLANADVISER Top 100 Retirement Plan Adviser. And PLANSPONSOR named us the 2018 Retirement Plan Adviser of the Year—Small Team.

The retirement industry has significantly evolved in the last fifteen years. I’ve been honored to be a small part of the process that has brought about many of those changes, most importantly,...

Produkt-Details

• Erscheint lt. Verlag: 25.8.2020
• Sprache: englisch
• Themenwelt: Sachbuch/Ratgeber ► Beruf / Finanzen / Recht / Wirtschaft ► Geld / Bank / Börse
• ISBN-10: 1-5445-1521-9 / 1544515219
• ISBN-13: 978-1-5445-1521-2 / 9781544515212