By Ric Lager
William Francis "Willie" Sutton was one of the all-time great American bank robbers. Legend states that when asked by a newspaper reporter why he robbed banks, Willie answered, "Because that is where the money is."
I have interviewed dozens of individual company 401(k) retirement plan participants. That has lead to my review of the same amount of default company 401(k) retirement plan menus.
Target-date mutual funds are "where the money is" in your client's company 401(k) retirement plan accounts. That is where you should start building your company 401(k) retirement plan advice niche.
Securities and Exchange Commissioner Luis Aguilar recently warned on the "inherent risks" of target-date mutual funds. He especially was critical of the lack of disclosures in target-date mutual funds to company 401(k) retirement plan participants.
There is nothing like a timely, headline-grabbing idea to captivate a client's attention. That is a great support tool to help you develop a niche investment advice business that gathers more assets from existing client relationships.
The Investment Company Institute states that 15 percent of all company 401(k) assets are in target-date mutual funds. Those assets total close to $1 trillion.
Target-date mutual funds have become the default investment option in the company 401(k) retirement plan menu. Most individual company 401(k) retirement plan participants don't even know that they own a target-date mutual fund of any kind.
Your existing clients can't explain the asset allocation in the target-date mutual funds they currently own. Those same individual investors think that the years in the target-date mutual fund description are the same years when their retirement income begins.
Target-date mutual funds are not among the safest default company 401(k) retirement plan options. These mutual funds are also among the most expensive to own.
Do I have to mention that most individual investors don't know the relationship between bond prices and interest rates? Good. Part of the reason for that is the lack of disclosure by company 401(k) retirement plan providers who fill up default company 401(k) retirement plan menus with target-date mutual funds.
Go into your favorite mutual fund database. Search the investment returns from the summer of 2008 to the spring of 2009 for any target-date mutual fund ticker symbol that you find. Next, compare the annual expenses of that mutual fund.
The more you do your analysis, the more your company 401(k) advice prospecting presentation builds itself.
There was no target-date mutual fund lesson learned during the last great stock market crash. Your client asset-gathering opportunity now is make your clients aware of the need for them to have a stock and bond market risk management game plan that includes their company 401(k) retirement plan target-date mutual funds.
Tell your clients that you want to make sure that they don't experience a repeat of the last great stock market crash. Remember the old joke about a 401(k) turning into a 201(k)?
The only thing less funny than the original joke would be for you to allow your clients to go through the same investment heartache again.
Your current clients desperately need your company 401(k) retirement plan menu analysis and advice. These individual investors have never been able to make informed investment management decisions on the target-date mutual funds that have exploded in popularity in their company 401(k) retirement plan accounts.
There will be loss of company 401(k) retirement plan principal when the current all-time low interest rates begin to rise and the current all-time stock market highs begin to fade away.
This is a great environment to provide full disclosure and investment management expertise to your company 401(k) retirement plan advice clients.
The current headlines are in your favor. You already have the existing client relationship. Now expand that relationship to include company 401(k) investment advice.
Remember to ask both members of your client household for copies of their most recent company 401(k) retirement plan statements.
Ric Lager is founder and president of Lager & Co., a registered investment advisory firm based in Golden Valley, Minn. He was the co-creator of the “No More Pies” investment series for financial advisors and author of “Forget the Pie: Recipe for a Healthier 401(k).” Ric may be contacted at [email protected].