This is good news for investors, and it’s good news for financial advisors as well, since studies show that more than 90% of investors go along with this default option and its algorithms, demonstrating their indifference or reluctance to managing their own financial investments. What do you — and your clients — need to know about how target-date funds serve investors, and how you can help them leverage the advantages these funds have come to offer?

Basic vs. Custom

TDFs are convenient for both participants and plan sponsors because they require little effort on anyone’s part, and they work. But how well do they work? Oftentimes they work well enough, but it’s a fact that a participant’s retirement nest egg could be feathered more luxuriously if they — or their financial advisor — had taken an interest in tailoring the funds according to the individual’s personal goals rather than merely their retirement age.

While it is legitimate for an algorithm to decide, based on a participant’s age, how much they will need in retirement, financial advisors know there are thousands of other factors to consider, including:

• Is the participant married and if so, does their spouse work and contribute to their own 401(k)?
• Is the spouse significantly younger (i.e., has more potential years to earn money)?
• Are there any health concerns on the horizon?
• Does the participant have other retirement vehicles such as a personal IRA or other assets such as a home, vacation home, investment property, business, stocks, jewels, a stockpile of rare beanie babies, etc.?
• What is the participant’s expected lifestyle in retirement? Will they live as they do now, or do they expect to move, downsize, travel extensively or make another major life change?
• Will the participant have substantial expenses in retirement such as paying for eldercare for themselves or their parents, tuition for themselves or their children, weddings, funerals, etc.?
• Does the participant have a large mortgage or a lot of debt to pay down?

The answers to the above questions could impact the level of retirement funds necessary by hundreds of thousands of dollars.

Help with Portfolio Design

Here at 401GO, we offer the services of an automated portfolio builder to help participants better tailor their investments to their needs and preferences. This tool is particularly helpful to participants who work with us because we offer so many more options — more than 100. This level of choice can feel overwhelming to some, which is one reason we created our automated portfolio builder — as a way for investors to participate in their retirement fund choices without feeling overload.

But the automated portfolio builder isn’t for everyone. Many plan participants are happy with their company’s TDF and the algorithm’s management and see no reason to tinker with it. It’s a great hands-off default for those who don’t want to give their retirement much thought.

Others desire more than our automated portfolio builder provides — the personal touch of a real live financial advisor. By talking to 401(k) plan participants personally, learning their goals, determining their tolerance for risk and factoring in other considerations, you can help craft a specific retirement plan just for them.

Important Changes to TDFs

You may be aware that TDFs used to come with fairly steep fees that could impact participants’ gains, but that is no longer necessarily the case, despite the fact that 70% of the TDFs are controlled by just three players — Fidelity, Vanguard and T. Rowe Price. Greater transparency, improved service and competitive fees have grown with the popularity of TDFs, making them more attractive to businesses across the U.S. Still, it can be worth it to your clients to see what some of the smaller players in the game have to offer as well.

The Future of TDF Management

While inflation, interest rates and other factors also have an impact on TDFs and how they are managed, these moving parts are what financial advisors and anyone in finance understands is simply part of the job of overseeing investment accounts.

When you’re working with small businesses, their employees or individual clients, remember that 401GO offers the fastest, easiest path to getting a 401(k) up and running, without any of the usual hassles or constraints. Contact us today for more information.

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Here at 401GO, we provide a valuable service to small business owners by providing them with an easy, affordable way to offer their employees a 401(k) plan. Many of these small businesses rely on the services of a financial advisor to help them navigate the seemingly convoluted path of investing. With 401GO, financial advisors can choose between built-in or outside 3(38) fiduciary services.

Built-in 3(38): How Does It Work?

As with any career, being a financial advisor comes with pros and cons. Finance is an exciting field, but that excitement comes with a price: risk. Depending on a number of factors, including the types and numbers of clients you have, your expertise and experience in various areas of finance, your comfort level taking on certain challenges and assuming risk, and your ability to weather the storms that are part of the finance and business landscape, you may prefer to delegate the task of assuming some of that risk to our 401GO advisor.

We operate a robo-advisor that financial advisors can count on to select and execute investments on their behalf. Our advisor fulfills all the requirements necessary to act as your client’s 3(38). Our 3(38) creates a robust and affordable fund lineup, saving them (and you) money, time and risk.

Selecting funds and managing investments isn’t easy — if it was, anyone could do it. But just anyone can’t do it — in fact, they’re not even allowed to, since ERISA was written to protect companies and individuals from devastating losses incurred through mismanagement due to inexperience, ignorance, genuine errors and, as much as possible, intentional fraud.

In selecting investment lineups for your clients, our financial advisor ensures they are:

• Astutely chosen — Financial advisors can count on the experience and professionalism of our 3(38) services. We’re here to assume the risk and take some of the work off your plate.
• Economical — The services you perform for your clients saves them money, and the services you receive from the GO Invest advisor saves you money. The more you save, the more competitive your rates can be, and the more your bottom line can grow.
• Diversified — Diversification in a retirement portfolio or under ERISA 3(38) fiduciary rules involves spreading investments across different asset classes, industry sectors and geographic regions, to reduce risk. This strategy aims to protect against market volatility and large losses. Fiduciaries must ensure that plan investments are diversified to fulfill their obligations and provide participants with a range of investment options.

Additionally, GO Invest reviews all investment options quarterly and adjusts them as needed to maintain a healthy lineup.

Acting as a 3(38) Fiduciary

As much as financial advisors love the built-in advisor option for its flexibility, efficiency and reliability, there are times when you may want to assume the 3(38) role yourself and create custom fund lineups using our proprietary fund builder. This allows you to play more of an active role, keep more control and take the reins of your clients’ investments, managing their assets on their behalf.

While some financial advisors are content in a 3(21) role in which they are limited to offering advice and making suggestions to the plan sponsor, taking on a 3(38) role gives you the added responsibility of selecting the investments. For some financial advisors, taking on this role gives them valuable experience and helps build skills that they can parlay into growing their business. Others who go this route have worked as financial advisors for many years and are comfortable in the role of a 3(38), thus, they do not have the worry of finding enough time and resources to fulfill their clients’ needs, because they already are well-versed in this area.

A Third Option: 3(38) Partnerships

Yet another valuable option 401GO provides its clients is the opportunity to partner with a third party who can act as a 3(38). With this option, you can provide your clients 3(38) service without having to furnish that service yourself. This is a perfect hybrid option for financial advisors who want to keep as much control as possible without having to devote the necessary time and effort to deliver the complete services your clients need.

Our 3(38) partners specialize in creating investment lineups and keeping them updated and tidy.

You can suggest and select investments for your clients, but instead of implementing the investments yourself, you may choose to partner with one of our third parties. As much as so many of us have come to love the automated services that make our daily lives so much easier — like the 3(38) services provided by GO Invest — we know that some people still like dealing with individuals, and for them, we offer our third-party service for a small additional fee.

401GO: More Choices for 3(38) Services

At 401GO, we offer our clients so many choices because we want them to have the flexibility to manage their clients’ investments in the manner that suits them best. Whether you prefer to act as your clients’ 3(38) or to outsource this service, we want you to know that when you work with 401GO, you have that choice. 401GO saves you — and your clients — time and money.

The post Built-In 3(38) or Optional Outside 3(38) Fiduciary Services? appeared first on Fast and Affordable 401k for growing businesses.

One of 401GO’s primary goals is making investing easier — for companies and their employees. Our automated guided portfolio builder can quickly assist users in making the types of selections they may not be comfortable making on their own.

Choice Overload

Choice overload is real, and although it has become more prevalent since the dawn of the internet, having too many choices has been an American problem for a long time. While some consumers have more trouble making decisions than others, the fact is that the more choices you have, the more difficult it can be to decide. No matter what you’re buying, you want to make the best choice for you. At 401GO, we offer many more choices than other plan administrators — well over 100.

While investing in any of the options we provide is infinitely better than putting your money in a bank account, under your mattress or into your brother-in-law’s latest startup, it’s clear that some options are better for some investors than others. How do you know which are best for you?

Ask the Portfolio Builder

When you use the 401GO portfolio builder, it automatically takes into account such factors as your age and the age at which you expect to retire. It’s critical to consider how long it will be before you will need your retirement funds — the closer you are to retirement, the less risk you want to take on.

For many workers, a 401(k) is their first foray into investing, and at 401GO, we want that to be a good experience — free of angst and regret. To accomplish this, our automated portfolio builder holds your hand through the process, asking you important questions that help us determine your capacity for risk. Next, our algorithms build a customized portfolio, based on all the relevant criteria. All you have to do is watch your money grow!

Getting Comfortable with Investing

Whether your 401GO portfolio is your first time investing or you have been investing for years, know that our guided portfolio builder is an option you have — not a requirement. You can devote as much or as little time and energy to the process as you want. For instance, you can use our guided portfolio builder and then opt not to invest in the funds it recommends. Or you can accept some, but not all, of the recommendations. Or you can build your entire portfolio on your own.

What makes the 401GO system so advantageous is that you can make changes to your portfolio whenever you wish. You are not tied to any single fund for any period of time. Thus, you may want to start investing with the guided portfolio builder, then over time, as you learn more about investing through your own research, you may opt to make changes.

The Rewards of Investing

Time was, an employee’s retirement was funded by their company’s pension plan (if their company had one) instead of a 401(k). In the best-case scenario, employees enjoyed a comfortable retirement, funded by their employer. In the worst-case scenario, the employer went bankrupt before or during the employee’s retirement, leaving them in the lurch. With the passage of the law now known as ERISA in 1974, pensions had to be insured, guaranteeing employees’ benefits. Shortly thereafter came the birth of the 401(k) plan, an alternative that was easier and cheaper for companies to manage than pensions.

While some may lament the demise of pensions which lay all risk at the feet of the employer, one big advantage of a 401(k) plan is the control it hands over to employees. Although employees take on more risk, they may see much larger returns on their investments as well. 

Regardless of whether the investments pay moderately or handsomely in retirement, the choice lies wholly with the employee, which is how many investors prefer it.

The Role of Financial Advisors

As much as we like to extol the virtues of choice when it comes to your investments, we want you to know that you are always free to use your company’s financial advisor to help you make important decisions with respect to your 401(k). We can grant access to your account to your employer’s financial advisor so they can see what your investments are and how they are doing. Your advisor may recommend you stay the course or make changes to better meet your financial goals.

Start Early for Best Results

Your employer has chosen to work with 401GO to provide you with an important benefit — the opportunity to invest in your future. A secure retirement greatly improves quality of life. We have provided our guided portfolio builder and we offer affordable investments as a way to encourage plan participation. With a greater pool of participants, more favorable outcomes are possible.

Get your recommendations from our guided portfolio builder today, and enjoy the benefits of a customized retirement plan for life.

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