My latest JDSupra.com article can be found here.
My latest JDSupra.com article can be found here.
I think there are two types of leaders: those who lead and those who are enamored with being a leader.
When you’re a leader and if you have people following you, you have the responsibility to lead. Being a leader isn’t just about making decisions, it’s about cultivating relationships with those that follow you. I have seen too many times in the past with student organizations or business, those that try to lead without communication and not developing a consensus with their followers.
I once was part of a coup at the school paper to remove an editor in chief that I loved like a sister to me because she lived in an ivory tower when it came to leading. Her detachment from the rest of the staff was her undoing because she didn’t communicate well and was speaking badly of almost every staff member to every staff member. When we shared the comments made about us by her, it helped seal her fate. Almost 21 years later, I regret being a part of that coup because it could have simply been avoided by just hammering it out with an editorial board meeting.
Even if you fully own your business, it’s always important to speak to the “troops”. People are very sensitive, they want to be kept in the loop and believe that their work and dedication to you matters. Being a leader is more than just having the title. It means actual leading. It means listening to the people who are there to support you because if you end up mistreating them, people will turn on you when they can.
Like being a plan fiduciary, being a leader requires responsibility and leadership requires more than just having the position.
I used to attend a lot more networking events when I first started my law firm when I had very little clients and I think that experience kind of made me attend far fewer events.
Networking is an integral part of building any business whether it’s a law firm, third party administrator, financial advisor, or even a limousine owner. For me, networking is all about building relationships that can help you generate business. It takes time, lots of effort, and is quite rewarding.
The biggest pet peeve I have about networking is what I call the obnoxious direct sell. Picture being at a networking event and you own a third party administration company. You meet a financial advisor and the first thing he asks you is who is the financial advisor on your 401(k) plan. You just met this guy and he’s already trying to be your financial advisor. You barely know him more than a stranger on the street and he’s trying to sell you a service you probably don’t need if you did a diligent job of hiring an advisor.
To me the purpose of networking is to meet people who are spheres of influence, who can refer you business when someone they know needs someone of your caliber to help. These relationships require trust and they require time, so doing the hard sell to sell a service to this potential source of business is going to backfire.
When I’m meeting another retirement plan provider or another professional, I’m not going to ask them who their ERISA attorney is. They know what I do for a living if they listened to the introduction. If they like what they hear what I have to say, they will develop a relationship and if they need an ERISA attorney, they’ll call or if someone they know who needs an ERISA attorney, they’ll send them my name.
Networking is like dating. If you go too fast to the hoop, you’re likely to get blocked/rejected. Any good relationship is developed from trust that takes time and you need to see the bigger picture. Concentrate on developing pipelines of referrals and less on the quick score.
If you develop a good reputation in this business and you develop great relationships, you’ll make it. If you see relationships just as a direct way of selling, you’re going to fail and offend a lot of people.
Another quick tip on networking: if someone is trying to sell you a product or service to you and promises that they can bring you clients in return, they never do.
We’ve been conditioned in life that everything is about results. I know from law school the hard way how much that first job relied so much on grades. Businesses are so concerned with the bottom line and we know how sports teams are fixed on wins and losses.
When it comes to retirement plans, results and the bottom line are kind of meaningless if you think about it. A participant’s rate of return isn’t as important as whether the plan puts a participant in a position to make informed investment decisions if the participants directs their investment in a retirement plan.
The participation rate of the plan isn’t as important as whether the compliance tests are run correctly.
The bottom line here is that Plan sponsors need to understand that when it comes to a retirement plan, it’s all about the process and less about the result. I will tel you that when the Internal Revenue Service and/or Department of Labor audit a plan, they never look at the rate of return for the Plan. What they look at is compliances tests and information that gives them the satisfaction that the plan is run according to the terms of the plan document, the Internal Revenue Code, and/or ERISA. That’s it.
Too often brokers and financial advisors think about their client’s retirement plan needs and only think about the 401(k) plan. It’s understandable based on their lack of understanding retirement plan basics, but it’s not when there are a vast selection of retirement plan consultants and ERISA attorneys who can help advise the client and the financial advisor.
A 401(k) plan is an attractive savings vehicle for plan participants and if done correctly, a great employee benefit. However, there are a few plan designs such as new comparability and safe harbor design that can help augment the retirement savings of highly compensated employees. In addition, there are other plans that can be added to a 401(k) plan that can certainly add a lot more firepower to retirement savings like a cash balance plan, a defined benefit plan, or in many cases, a non-qualified deferred compensation plan.
Too often, plan advisors just don’t look beyond the 401(k) plan. This is more so when the advisor is using a bundled or payroll provider as the plan’s third party administration (TPA) firm. Bundled or payroll provider TPA tend to be more mechanized about retirement plans, so I find they are the last ones who will try new plan designs or bring the option of adding another plan. Unbundled TPAs tend not be boxed into the 401(k) plans, so I find that they think outside of the box more often.
A few years ago, I met a financial advisor with a law firm client asking whether they could do better than the typical insurance based platform 401(k). Based on the law firm’s demographics, a cash balance plan could be a great option and this broker would never have thought about anything other than a 401(k) plan if he hadn’t talked to me. Based on the way he acted with how much more money I told him the partners could save for retirement, you thought I found a hidden treasure. Needless to say, I made a new friend.
401(k) plans are great plans if done correctly, but there is no reason that a plan sponsor should stop there if their pocketbooks can afford more.
My latest article on JDSupra.com can be found here.
Thalidomide was supposed to be the wonder drug that helped women manage morning sickness until they discovered it caused birth defects. Asbestos was supposed to be the ultimate fire resistant material that was later found out to cause mesothelioma when produced or when disturbed. When companies decided to ditch defined benefit pension plans for a cheaper alternative in the 401(k) plan, they also had a hidden danger with a 401(k) plan, but it doesn’t have to be that way. If managed correctly, a 401(k) plan is an effective retirement plan for the employer and employees. If not, it’s a retirement plan thalidomide except the plan sponsor doesn’t know the danger.
The switch from defined benefit plans to 401(k) plan switch the burden of funding retirement from the employer to the employee. If the plan is participant directed, it also switched the selection of investments from employers aided by financial advisors to the folks who have the least amount of background to make these tough decision, the plan participants. Too many plan sponsors don’t educate their plan participants to make informed investment decisions and too many plan sponsors don’t have a proficient investment advisor to guide them through the financial process. It doesn’t have to be this way. Getting investment advisors who know what they’re doing and getting participants enough investment education/advice isn’t hard, but too many plan sponsors are too lazy to manage. But it doesn’t have to be this way.
Defined benefit plans have pretty straightforward fees. You know how much annual administration is and you don’t have that luxury with participant directed 401(k) plans that have multiple fees that can confuse anyone including retirement plan professionals. Too many plan sponsors have been sued because the 401(k) plan fees are too high since plan sponsors have a fiduciary to pay reasonable fees. But it doesn’t have to be this way. Plan sponsors can benchmark their fees to see if they are reasonable, actually they have no choice; they have that duty.
401(k) plans don’t have to be a hidden danger; all they need is a plan sponsor who understands their pitfalls and wants to avoid the liability that goes with it. That’s the tallest order.
If you ever want to know what the top mutual funds were 3-5 years ago, you can look at the mutual fund lineup of many 401(k) plans today.
While it may sound like a joke, it isn’t. Too many 401(k) plans don’t have a financial advisor or don’t have a competent financial advisor who helps them manage the fiduciary process in pruning the mutual funds that were yesterday’s winners.
I’ve been in this business long enough to remember when everyone wanted to be In Janus Twenty and ever other Janus fund out there (which back in 1998-2000, pretty much had the same investments in each fund) as well as when American Funds was the big deal.
As anyone with some financial sense can tell you, very few actively managed funds stay on top forever. Actually, no actively managed stays on top forever, Heck, I remember when Legg Mason Value Trust beat the S&P 500 for about 15 years before coming down back to Earth pretty hard.
A great way to minimize liability is to develop an investment policy statement that dictates which mutual funds to hold, which mutual funds to fold, which mutual funds to walk away, and which mutual funds to run from. Not having such a policy statement or not following that statement can be a huge billboard for a participant to sue you.
That is why as a plan sponsor, it’s important to have financial advisors to guide through the process of selecting funds to make sure that yesterday’s top mutual funds are not in today’s fund lineup.