What's in a Name?
Our cover story this month, “Battle Lines,” details what being a fiduciary means for an adviser—the application of the prohibited transaction rules, and the financial impact if something goes awry. In addition to detailing the practical applications of the term, and functional fiduciary rules, you will find tips in the three key areas of education, insurance, and infrastructure for advisers hoping to avoid trouble on the fiduciary front.
When it comes to avoiding trouble, professional relationships aren’t all that different from personal relationships. When it comes to assuring a good working relationship—personal or private—compatibility is key. After all, advisers are not one-size-fits-all—and neither are their plan sponsor clients. While no one enters into a relationship with the expectation that things will not work out, sometimes keeping things going requires work and commitment. What happens when a client relationship doesn’t work? Learn how to try to prevent that “divorce”—and how to handle it if a relationship termination is inevitable—in “Breaking Up.”
One reason client-adviser relationships don’t always work is profitability—and, sometimes, it seems the best way to deal with an unprofitable client is to show him the door. Of course, not all advisers take the time to determine individual client profitability. While determining actual profitability on a per-client basis can be tricky, in “The Road to Profitability,” you will find some ideas of how best to make that assessment, including simple calculations and what tools are available in the industry.
Building relationships—especially profitable relationships—also can mean finding new ones. So, how many vendor searches have you completed this year? How many times will you be asked by plan sponsor clients to select a plan recordkeeper over your career? Besides helping to monitor and select investment options for the plan, choosing a recordkeeper could well be the most important recommendation in which you will play a role. Although there has been a significant amount of consolidation in the industry over the last few years, there are still dozens of providers from which each plan can choose. This year, once again, we surveyed advisers about their opinions of DC vendors and, as you might expect, advisers are tough customers. See just how tough in “A Matter of Perspective.”
Advisers have, in large part, been skeptical of exchange-traded funds (ETFs)—more specifically, their application to 401(k) plans. Despite exponential growth of ETFs as retail investment options over the last year, issues remain with their ready absorption in many retirement plan designs. Not that the controversy is new—the use of ETFs in 401(k) plans has been debated since their creation, and despite the emergence of new recordkeepers ready and able to accommodate those offerings, and their growing inclusion in managed account programs, there remains disagreement over how well they work. You can learn more about the schools of thought surrounding the use of ETFs in 401(k)s and how some plans are finding creative ways to include them in “Wrapping Them Up.”
Finally, much has been much made of late regarding reports of increases in 401(k) loans and hardship withdrawals. Whether those increases are real and related to recent economic events, or if they are simply a seasonal trend, as some have suggested, industry experts agree that such withdrawals are not always in the best long-term interests of participants. What can you do to help stem the tide? There are ideas on how best to address this topic with sponsors and participants in “Draining Your Retirement,” while those of you wanting to brush up on the rules surrounding hardship withdrawals will find that this month’s Fiduciary Fitness column addresses exactly that.
I hope the timely nature of some of these features gives you food for thought as you prepare for the end of the year and develop your business plans for 2009. Happy reading!