Reviewing — and making changes to — plan investment lineups is integral to the fiduciary function, and a process in which plan sponsors routinely rely on their plan advisors for help. This week we asked NAPA Net readers to share their experiences.
As for the “why” behind those changes, respondents said that the vast majority were triggered by multiple criteria, though nearly all of this week’s respondents cited as a factor that there was a lower-cost alternative available. Other criteria cited were:
- 84% — no longer complied with the plan’s investment policy statement
- 67% — performance
- 38% — wanted to simplify the plan investment menu
- 16% — no longer met monitoring criteria
As for the plan investment committees’ reaction to these changes, one third were ambivalent about the change, one third were eager to make the change, and the other third were agreeable with the process undertaken that called for the change.
“The reasons for the change were well-documented and the client agreed that the replacement fund was a better choice,” noted one respondent. Another observed, “They trust that we are keeping them within the IPS guidelines.”
Rejection ‘Slips’
We also asked about what happened the last time an investment menu change was recommended — and rejected. Two-thirds said they documented their recommendation and committee/plan sponsor response, while half brought it up again at the next committee meeting (multiple responses were possible, of course). Another third said they haven’t had any recommendations rejected. One respondent noted that it hadn’t happened recently, while another said simply, “We have not had any recommendations rejected... ever.”
On the other hand, one respondent commented that “during a routine monitoring in 2011, I recommended removal of Pimco Total Return for a variety of reasons... long before the headlines appeared. My recommendation was rejected because ‘this fund has done so well,’ or ‘why not own one of the most popular funds’... among other comments. As it turned out, all eventually made the change, and all acknowledged that it should have happened sooner. I lost the initial battle, but won the war; committees must learn to look beyond what is happening today when making the decision to hold or replace a fund; discussions now include looking to the future to help decide on the prudence of their actions... small victory!”
Thanks to everyone who participated in our weekly reader poll!
Got a question you’d like to pose to the readership? Post it in the comments section below, or email me at [email protected].
