RSSIf you are wondering what these topics have to do with each other please read on.
Recently my wife and I wanted to try a restaurant on North Rush Street in Chicago. It was early in the dinner hour on a warm Saturday evening and they had an open table right on Rush Street. Nobody was waiting but the snooty hostess wouldn't let us have it as the table was for four. Half the fun of dining out in this area during nice weather is sitting along Rush Street and watching the array of people who parade by.The previous Saturday we had eaten outside at a sister restaurant to this location. We had our usual great food, great service, and great people watching. We assumed this location would offer a similar experience.
Instead of waiting for 25 minutes, we walked down the street to Hugo's. Hugo's is a seafood restaurant and shares the building (common ownership separate kitchen) with Gibson's which is about the only place I will eat a steak other than off my own backyard grill. A couple of years ago I saw an article where Gibson's was ranked as Chicago's top grossing restaurant, with Hugo's as number 3, there are good reasons for this success.
We were promptly seated at an outside table on Rush Street. My wife had Grouper, I had Crab Cakes, and both as expected were outstanding. Our server was kind enough to suggest that we order ½ orders of two side dishes vs. full orders she was right more than enough for the two of us.
The table next to us offered a great example of why Hugo's is such a top restaurant. The two women each ordered entrée salads. The salads came out different from what they were used to at Gibson's (both restaurants allow patrons to order off of either menu). Without question, the waitress took the salads back and had them prepared in the Gibson's kitchen. When the new salads came back one woman still said it didn't look like what she was used to getting at Gibson's but she was willing to try it. Without missing a beat the waitress said "…take a few bites, if you still don't like it we will get you something else…"
The service received by many 401(k) plan sponsors from the insurance brokers who place their company's plan with an insurance company is often much more similar to our experience with the snooty hostess than the experience at Hugo's.
Let's look at a 401(k) plan advisor's service model that would befit the quality of the food and service at Hugo's. This advisor would doat least the following for the plan sponsor (and ultimately for the plan participants):
- Analysis of mutual fund performance against appropriate benchmarks.
- Asset allocation studies as required addressing possible inclusion of new asset classes.
- Development of an Investment Policy Statement (IPS).
- Quarterly mutual fund performance reporting and client meeting providing analysis of the retained mutual funds.
- Recommendations, where appropriate, with regard to retained mutual funds that do not meet IPS guidelines.
- Annual review of plan costs to include fees for mutual funds, custodial and administration.
- Annual review of the IPS.
- Mutual fund searches as required replacing existing mutual funds or retaining mutual funds for new asset classes (included in fee, regardless of number of searches).
- Fiduciary education programs.
- On-call consulting, as needed.
Likewise the insurance broker appears to be helpful and service oriented at the outset. But how often has he/she done a review of your plan? How often has a full review of the plan's fees and expenses been performed? Probably never because then you would know how much the plan is being charged by her (I've seen commissions exceeding $25,000 on some relatively modest sized plans).
If these fees came out of company assets, that would be one thing. Generally insurance commissions and related expenses come right out of the plan, directly out of the accounts of the plan participants. These expenses reduce the return on the participant's retirement accounts. So as a plan sponsor (and Fiduciary) it is your responsibility to monitor all plan costs for the benefit of the participants. If you aren't getting your money's worth from your advisor or insurance broker maybe it's time to relook at this arrangement. Don't the participants in your plan deserve an advisor who uses the "Hugo's Model" vs. the "Snooty Hostess Model?" I work with plan sponsors to help them provide the best plan possible for their employees and welcome questions and inquiries
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