Saturday, November 07, 2009

"Worth" Whiles

I’m sure you’ve seen that commercial where a series of more-or-less everyday events and their price tags are presented, building to larger and more exotic events (and price tags) until they culminate with some extraordinary event—one that the announcer declares is “priceless.”

As an industry, we have long worried about the plight of the average retirement plan participant who doesn’t know much (if anything) about investing, who doesn’t have time to deal with issues about their retirement investments, and who, perhaps as a result, would really just prefer that someone else take care of it, though it’s not always clear how much they value that effort.

What gets less attention—but is just as real a phenomenon—is how many plan sponsors don’t know anything about investments, don’t have time to deal with issues about their retirement plan investments, and who, perhaps as a result, would also really just prefer that someone else take care of it. But how much are you willing to pay for that?

Now, there’s a difference between choosing investments and selecting a trusted adviser to do so. However, as complicated as the former can be, there are certain touchstones that even an amateur can rely on, IMHO: developing a menu that encompasses a broad array of choices, that fill out a style box grid, that factor in performance results, and/or fund rankings. I’m not saying it’s “easy,” or should be entrusted to amateurs (particularly when issues of fiduciary liability are involved), but it’s certainly manageable.

Quantify Able?

Contrast that with the myriad challenges attendant to selecting an adviser—particularly when you consider that PLANSPONSOR’s surveys routinely show that plan sponsors choose an adviser primarily based on the quality of the advice they provide (primarily to committees, but a close second is the advice rendered to plan participants). One can’t help but wonder how that advice is quantified (certainly not in the same way that investment funds can be). Doubtless, that helps explain why so many advisers are hired not on what they know, but on WHO they know.

But for many plan fiduciaries, the obstacle to hiring a retirement plan adviser is financial, not intellectual. Particularly for a plan sponsor who has not previously employed those services—or, more ominously, in the case of one who has hired an adviser that didn’t hold up their end of the bargain—the additional costs of hiring an adviser can be problematic. The question you ask that prospective adviser may be “Why should I hire you?” But, IMHO, the question that is often the heart of the matter is “Why should I pay you that much?”

There are ways, of course, to quantify the value of those services, ways that quantify not only what that adviser is worth, but why those fees are what they are. In the most obvious case, an adviser can walk in and demonstrate the ability to save a plan money. That’s clearly added value, and value that is readily measured (that, of course, only lasts a year, maybe two; after that, the baseline has been reset in terms of savings expectations).

Similarly, the ability to increase plan levels of participation, deferral, and investment diversification also adds value—but value that, IMHO, like the value of retaining qualified talent, is harder to quantify. Many advisers promote their services as a shield against litigation, or at least some kind of buffer against the financial impact of such an event, but in my experience, while most employers are glad to get/take the “warranty” (implied or explicit), they generally aren’t willing to pay very much extra for it.

Where else can advisers make a difference? You’ve no doubt seen surveys that show that, in the course of a year, most participants spend more time thinking about—and planning for—their vacation than about their retirement plan investments. Ask any plan sponsor how much time they spend working on, or worrying about, their retirement plan, and you’ll probably find a similar imbalance. Of course, plan sponsors, like plan participants, know that they should be spending more time on such matters—and most will admit that, no matter how much time they are spending, they should be spending more.

So, how much time are you spending? How much more do you wish you could spend? How will that adviser you’re considering engaging make it possible for you to live up to your fiduciary obligations? So, find an adviser that can save you money, engage one that can spare you aggravation if you have to, but in this crazy, hectic period, if you can find one who can save you time - well, IMHO, that’s truly “priceless.”

—Nevin E. Adams, JD

See also “IMHO: ’Right’ Minded

No comments:

Post a Comment