Compensation Transparency Pays Off

According to recent research by Hearts & Wallets, the best way for advice providers to build trust with clients is to help them to understand how they get paid. With over half of investors thinking that they’re getting ripped off and only 19% fully trusting their advisor — a number that’s down from 24% in 2010 — building trust is a key factor in closing and retaining clients, as well as cross selling.   Read More

NAPA Webcast Discusses DOL Tips on TDFs

In a March 21 NAPA webcast sponsored by T. Rowe Price, Brad Campbell of Drinker, Biddle & Reath provided particularly useful insights into how the DOL’s list of “Tips for Plan Fiduciaries” from February will be an important guide in the future for advisors and plan fiduciaries. Although they’re not official guidance, Campbell strongly recommended that fiduciaries play close attention to these new guidelines.   Read More

Retroactive Corrective Amendments

Highly compensated participants in a plan that fails coverage or nondiscrimination requirements for a plan year face more serious tax consequences than if the plan is disqualified for another issue. Furthermore, such qualification failures are demographic failures, and are not eligible for self-correction under EPCRS, the IRS correction program. A new Technical Update from SunGard Relius explains how to make a retroactive corrective amendment under Treas. Reg. §1.401(a)(4)-11(g) — a.k.a. an “11(g) correction.”   Read More

This Week on NAPA Net

Last week’s news and commentary in the NAPA Net Daily included DOL’s $1.266 million fine levied on an advisor; the fastest growing advisory channel; use of investment policy statements among advisors; more in-depth reports on sessions at the 401(k) Summit; and increasing attention being paid to passive strategies.   Read More

ICI: Retirement Assets Reach $19.5 Trillion, Driven by DC and IRA Market

The ICI reported that retirement assets grew to almost $20 trillion by the end of 2012, up 8.6% for 2012 and 7.9% since the pre-recession high. DC plans and IRAs, which held $5.4 and $5.1 trillion respectively, grew even faster — at 10.5% last year and 14% since their pre-recession highs. Government plans accounted for $4.8 trillion, growing 7.7% in 2012; DB plans, including annuity reserves, stood at $4.3 billion.   Read More

Best Deal in Town: Delaying Social Security

Where’s the best place to buy an annuity? According to a report by Boston College’s Center for Retirement Research, the answer is the Social Security Administration. By delaying SS benefits, individuals receive a higher benefit and are in essence “buying” increased streams of incomes by paying their expenses while they wait.   Read More

Three More Posts on 401(k) Summit Sessions

Three more in-depth accounts of the most popular sessions at the 2013 NAPA/ASPPA 401(k) Summit, held earlier this month in Las Vegas, have been posted on ASPPA’s website: “Legal Roundtable,” featuring ERISA attorneys David Levine, Marcia S. Wagner and Fred Reish; “Data ‘Minding,’” with NAPA Net portal conductor Nevin Adams of EBRI and Douglas Fisher of Fidelity Investments; and “Retirement Readiness,” with Peter Kapinos, Don Stone and Anthony M. Franchimone. All three were popular general sessions at the Summit.   Read More

Does Daily Valuation Limit Investment Returns?

Does daily valuation in DC plans limit investment choices and thereby investment returns? The UK division of Towers Watson makes the argument that although daily valuation offers obvious benefits, it limits exposure to less liquid investments like hedge funds, private equity, infrastructure and reinsurance — investments common in DB plans. Towers Watson estimates that DC plans would realize a 5% gain through these illiquid investments.   Read More

CalPERS May Move Aggressively to Passive Funds

The recent news (reported by P&I) that $255 billion CalPERS is considering going all-passive highlights the trend toward index funds in pension and retirement plans as well as among individual investors. Recent developments — Fidelity offering 65 BlackRock ETFs commission-free, Schwab and TD Ameritrade each offering more than 100 ETFs at no trading cost, and Schwab’s all-ETF platform — seem to bolster that trend. In the first two months of 2013, passive funds took in 62% of the flow. Active funds still have a 72% market share, but that’s down from 86% a decade ago.   Read More

California County Administrator to Retire with $423,664 Retirement Package

On the heels of this week’s Stockton, CA, bankruptcy case, which was caused in large part by the city’s growing pension liabilities, there are reports that an Alameda county administrator will retire at 63 with an estimated $423,664 per year package. Along with her $301,000 annual salary, she will get equity pay to make sure she is paid more than anyone else in the county (even in retirement), a $24,000 performance bonus, $9,000 to serve on a county board and an additional $54,000 for working more than 30 years. And don’t forget her $8,292 annual car allowance.   Read More

DOL Levies $1.266 Million Fine on Advisor for Double Dipping

ERISA expert Fred Reish notes that the DOL recently levied a $1.266 million fine on an adviser providing fiduciary advice for a fee that also received 12b-1 fees from the mutual funds they recommended, claiming it was a prohibited transaction. The DOL, which is starting to get a better understanding of fees paid to broker dealers and RIAs, also claimed that by taking undisclosed compensation, the advisor is setting its own compensation, becoming a de facto fiduciary and using that status for its own benefit.   Read More

How and Why Congress Should Curb Roth IRAs

Forbes columnist Deborah Jacobs argues that Roth IRAs should be curbed because they give outsized value to the super-rich while costing the government billions in tax revenue. Using the example of a serial Internet entrepreneur who put pre-IPO shares in a Roth IRA valued at $10 million on which he paid taxes, the shares are now worth almost $100 million. Not only will he not have to pay taxes on the gain, there is no minimum distribution requirement nor will his heirs owe anything. Venture capitalist and private equity partners also reap great rewards from Roth IRAs.   Read More

Few Advisors Use Investment Policy Statements for All Clients

While not an apples-to-apples comparison for DC plans, it’s interesting to note that only 39% of advisors surveyed by Russell in their recently released quarterly report used investment policy statements for all their clients. While most used them, 21% of the advisors surveyed didn’t use investment policy statements at all. Reducing risk was the major reason investors strayed from their investment policy, with a majority who did so relying on social media, friends and family.   Read More

More Participants Being Kicked Out of Old 401(k) Plans

According to research by Aon Hewitt, about half of participants with account balances of less than $5,000 were forced out of their plans in 2011, up from just one-third of such participants in 2005. Plan sponsors are realizing that maintaining low account balances from terminated employees raises their costs. For example, a $10 million plan with an average account balance of $10,000 pays 144 BPs, while a similar sized plan with an average of $50,000 balance pays 122 BPs.   Read More

ETFs Ready for Prime Time in DC Market?

Will the recent deal to make 65 BlackRock ETFs available commission-free on Fidelity’s brokerage platform mean greater exposure for ETFs in 401(k) plans? According to Tom Lydon of ETF Trends and Nicole Seghetti of The Motley Fool, that may be the case. As the leader in the DC market, Fidelity can force other providers to follow if they think Fidelity has a distinct product advantage.   Read More

Direct Sellers Make Gains Through Online Advice at Expense of Advisors

What’s the fastest-growing advisory channel? According to research by Cerulli involving 8,000 investors age 35-64 with over $100,000 in income, online firms are the leading channel, increasing AUM from $3.4 trillion in 2010 to $3.7 trillion in 2011. These brokerage firms have beefed up their advice offerings and have more advanced mobile and online access, as well as client portals, than do traditional advisors.   Read More

Bond Holders Sue Bankrupt City Over Pension Payments

The New York Times reported on what could be a seminal trial brought by bond holders caught in the Stockton, CA, Chapter 9 bankruptcy case who claim that retired workers should share the pain. As other states and municipalities face bloated pension payments many cannot afford, there should be a lot of interest in the outcome of this week’s four-day trial on the part of mutual fund companies that hold the bonds and the insurers that guaranteed them, who claim that pensioners are getting an unfair deal.   Read More

Last Week on NAPA Net

Last week’s news and commentary in the NAPA Net Daily featured the 9th Circuit’s ruling affirming the Tibble v. Edison decision; the straight skinny on California’s landmark auto-IRA legislation; what the DOL’s settlement with ING means to providers; SEC guidance on what should and should not be considered an advertisement subject to the 10-day review rule; and NAPA’s big plans for the rest of 2013.   Read More