Presented by: Sean King CPA JD MAcc Iceberg on the Horizon Iceberg on the Horizon Presented by: Sean King, CPA, JD, MAcc Iceberg on the Horizon Understanding & Managing Fiduciary Responsibilities in a Volatile Market Iceberg on the Horizon Presented by: Sean King, JD, CPA, Macc & Jeffrey M. Petrone, AIF SageView Advisory Group Securities offered through Financial Network Investment Corporation, Member SIPC. SageView Advisory Group and Financial Network are not affiliated companies.
Transcript
Presented by: Sean King CPA JD MAccIceberg on the HorizonIceberg on the HorizonPresented by: Sean King, CPA, JD, MAccIceberg on the HorizonUnderstanding & Managing Fiduciary Responsibilities in a Volatile Market
Iceberg on the HorizonPresented by: Sean King, JD, CPA, Macc & Jeffrey M. Petrone, AIF SageView Advisory Group
Securities offered through Financial Network Investment Corporation, Member SIPC. SageView Advisory Group and Financial Network are not affiliated companies.
Why are Icebergs Dangerous to Ships?Why are Icebergs Dangerous to Ships?
Because of What Lies Beneath…Because of What Lies Beneath…
The Current Environment: The Current Environment: A Perfect Storm of Fiduciary RiskA Perfect Storm of Fiduciary RiskA Perfect Storm of Fiduciary RiskA Perfect Storm of Fiduciary Risk
•• Markets have been more volatile than ever beforeMarkets have been more volatile than ever before•• Participants are faced with tough financial decisions and Participants are faced with tough financial decisions and •• Participants are faced with tough financial decisions and Participants are faced with tough financial decisions and
responsibility for their financial futuresresponsibility for their financial futures•• The regulatory and political environments are transforming The regulatory and political environments are transforming •• Lack of transparency with fees & expenses in defined Lack of transparency with fees & expenses in defined
contribution contribution plansplans•• Numerous lawsuits facing plan Numerous lawsuits facing plan sponsrssponsrse o s s s c g pe o s s s c g p spo s sspo s s•• Investor Confidence at an all time lowInvestor Confidence at an all time low•• 9090% of Defined Benefit Plans % of Defined Benefit Plans
j d b d f d dj d b d f d dprojected to be under fundedprojected to be under funded
The Current Environment: The Current Environment: Challenges Faced by Plan SponsorsChallenges Faced by Plan SponsorsChallenges Faced by Plan SponsorsChallenges Faced by Plan Sponsors• Increasing costs of Defined Benefit Plans
Sh ld h i b ff d DB/DC Ti ?• Should more than one option be offered – DB/DC, 2-Tier?• What Cost Structure is most competitive for the plans• What should be offered to participants?p p
Which is the best fit for my employees?Which provider is best?Which funds are best?Which funds are best?Which plan structure is best?
What has happened?What has happened?
Understanding the MarketUnderstanding the MarketCumulative Performance
What has happened?What has happened?Dec-78 - Jun-10
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Russell 2000 Index S&P 500 Index BC Long Government ML U.S. Treasury MasterMerrill Lynch 3-month T-BillMerrill Lynch 3-month T-Bill
Q: How important is it to you to help your employees make better investment decisions in your plan?
1. Very Important
2. Important
3. Somewhat Important
4 Not Very Important4. Not Very Important
5. Not at All Important
6. Don’t Know/Aren’t Sure
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Regulatory Developments: Regulatory Developments: What’s happening? What’s happening? What s happening? What s happening?
•• Fee Transparency requiring disclosure to participants Fee Transparency requiring disclosure to participants i d f i d f required for 2011required for 2011
•• Pending legislation addressing: Participant Advice, Pending legislation addressing: Participant Advice, Target Date funds, Target Date funds, Downside Protection Vehicles Downside Protection Vehicles g ,g ,
•• Stable Stable Value & Money Market Funds Value & Money Market Funds -- Currently being Currently being examined for examined for stability & transparencystability & transparency
•• Congress to examine the 401k and its equivalents Congress to examine the 401k and its equivalents
(401a, 457b, 457f)(401a, 457b, 457f)
N 5500 S h d l C ti di l q i d N 5500 S h d l C ti di l q i d •• New 5500 Schedule C compensation disclosures required New 5500 Schedule C compensation disclosures required for 2009 Plan Years*for 2009 Plan Years*
*Permitted to be deferred until 2010 for systems development*Permitted to be deferred until 2010 for systems development
Regulatory Developments:Regulatory Developments:What should you do? What should you do? What should you do? What should you do?
•• Most providers had prepared for fee disclosure Most providers had prepared for fee disclosure regulations. regulations. regulations. regulations. –– Consider informing employees Consider informing employees of of the actual cost of the plan. the actual cost of the plan.
•• Be aware of what your providers/advisors are being Be aware of what your providers/advisors are being ddcompensated:compensated:
–– Providers Providers –– Revenue Sharing, Participant Charge, Asset ChargeRevenue Sharing, Participant Charge, Asset Chargeg, p g , gg, p g , g
•• Keep abreast of regulatory Keep abreast of regulatory requirementsrequirements–– Several good information sources Several good information sources –– Consultants, providers, Consultants, providers,
websites and industry publicationswebsites and industry publicationswebsites and industry publicationswebsites and industry publications
•• Create a documented due diligence process for the Create a documented due diligence process for the management of plan decisions & follow it. management of plan decisions & follow it.
P fi P fi Sh i Sh i C ilC ilProfit Profit Sharing Sharing CouncilCouncil
www.psca.orgwww.psca.orgwww.psca.orgwww.psca.org
The Lack of Transparency: The Lack of Transparency: Who’s holding all the cards?Who’s holding all the cards?Who’s holding all the cards?Who’s holding all the cards?
•• Many vendors do not disclose the revenue sharing they Many vendors do not disclose the revenue sharing they i f l f d ii f l f d ireceive from mutual funds companiesreceive from mutual funds companies
–– The actual cost for the administration of the plan could be higherThe actual cost for the administration of the plan could be higher
Q: How confident are you that you understand all of the fees you and your participants are paying in your retirement plan?
1. Very Confident
2. Confident
3. Somewhat Confident
4 Not Very Confident4. Not Very Confident
5. Not at All Confident
6. Don’t Know/Aren’t Sure
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A Blueprint for SuccessA Blueprint for SuccessEffective Plan ManagementEffective Plan Management
Effective Plan Management Effective Plan Management gg•• Retirement Plan Cost AssessmentRetirement Plan Cost Assessment
–– Conduct a cost assessment of your plan annually. Identify all Conduct a cost assessment of your plan annually. Identify all f d i t d ith ti th l d f d i t d ith ti th l d fees and expenses associated with operating the plan and ensure fees and expenses associated with operating the plan and ensure they fall within acceptable ranges.they fall within acceptable ranges.
Effective Plan Management Effective Plan Management gg•• Vendor Search & Comparison Vendor Search & Comparison
–– A good guideline for performing a A good guideline for performing a market search for a retirement market search for a retirement l 3 t 5 t it titi l 3 t 5 t it titi plan every 3 to 5 years to ensure its competitive. plan every 3 to 5 years to ensure its competitive.
–– Can be done internally or with help of consultantsCan be done internally or with help of consultants
–– Should focus on investments, fees & expenses, services and Should focus on investments, fees & expenses, services and f l ff l fspecific plan featuresspecific plan features
–– Interview providersInterview providers
–– Document the processDocument the process
–– May not require a providerMay not require a provider
change to produce resultschange to produce results
Effective Plan Management Effective Plan Management gg•• ExampleExample Vendor Comparative Analysis for Company with: Vendor Comparative Analysis for Company with:
1400 1400 ParticpantsParticpants, $27 Million in Total Plan Assets, $27 Million in Total Plan Assets
•• Reduction in expenses of 0 42% = 32% ReductionReduction in expenses of 0 42% = 32% Reduction•• Reduction in expenses of 0.42% = 32% ReductionReduction in expenses of 0.42% = 32% Reduction
Effective Plan Management Effective Plan Management gg•• Investment Monitoring Investment Monitoring
–– Fiduciary Fiduciary standards require standards require plan plan sponsors to document the sponsors to document the d t l t it d if l l d t l t it d if l l process used to select, monitor and if necessary replace plan process used to select, monitor and if necessary replace plan
investments. investments.
–– Plan sponsors are held to the highest standard: The Fiduciary Plan sponsors are held to the highest standard: The Fiduciary St d dSt d dStandardStandard
–– If using an advisor be sure they assume fiduciary statusIf using an advisor be sure they assume fiduciary status
–– Introduce new ideas: ROTH, Downside protection investmentsIntroduce new ideas: ROTH, Downside protection investmentspp
–– Target specific groups within your employee baseTarget specific groups within your employee base
–– Consider automatic features: auto enroll, contribution increase Consider automatic features: auto enroll, contribution increase and rebalancingand rebalancingand rebalancingand rebalancing
–– Focus on the importance of Asset AllocationFocus on the importance of Asset Allocation
Q: Which type of investment/fund do you currently offer as your plan default investment option?
1. We do not have a default investment option
in the plan at this time
2. Stable value/money market fund
3. Equity fundq y
4. Balanced fund
5. Bond fund
6 Ri k b d/ t ll ti f d (lif t l6. Risk-based/asset allocation fund (lifestyle
fund)
7. Target-date (lifecycle fund)
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0% 0% 0% 0% 0%0%0%0%0%8. Managed account
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The Importance of Asset AllocationThe Importance of Asset Allocation
Source: Financial Advisors Study, 1991; Confirmed by Ibbotson Associates, 1999.No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. Study results are based on historical data and past performance is not a guarantee of future results.
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Asset allocation, which is driven by complex mathematical models, should not be confused with the much simpler concept of diversification. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.
Annual Total Returns for Key Asset Classes1 (ranked in order of performance)
Why Diversify? Because Winners Rotate.Why Diversify? Because Winners Rotate.
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Potential Results for the Plan Potential Results for the Plan •• Fiduciary Compliance Fiduciary Compliance –– documented due diligencedocumented due diligence
•• Potentially Lower Overall Plan CostPotentially Lower Overall Plan Costyy
•• Savings may be used to offset feesSavings may be used to offset fees
•• Increased Transparency of Fee StructureIncreased Transparency of Fee Structure
E d li f b i l lE d li f b i l l•• Ensure delivery of best in class planEnsure delivery of best in class plan
features and services from providersfeatures and services from providers
ConclusionsConclusions Markets may to continue to be volatileMarkets may to continue to be volatile
Implement effective plan Implement effective plan Implement effective plan Implement effective plan management techniques management techniques
Doc ment o r d e Doc ment o r d e Document your due Document your due diligence processdiligence process
Examine your retirement Examine your retirement program at least annually program at least annually
Continue ongoing education to participants focusing on Continue ongoing education to participants focusing on the importance of long term investing and asset the importance of long term investing and asset allocation allocation
Questions?Questions?Questions?Questions?
Q: Based on what you may have learned today, how likely are you to evaluate your retirement plan(s) in the future?
1. Very Likely
2. Likely
3. Somewhat Likely
4. Not Very Likely
5. Don’t Know/Aren’t Sure
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Q: How would you rate the effectiveness of this presentation?
1400 Centrepark Blvd. #605West Palm Beach, Florida 33401
Sean King, JD, CPA, MaccJeffrey M. Petrone, AIFPh: (561) 337-3125Fax: (561) 689-6791Fax: (561) 689 [email protected]
www.sageviewadvisory.com
“Defining and realizing the financial goals of fiduciaries and individuals.”
Jeff Petrone, Registered Representative | 1400 Centrepark Blvd., #605 | West Palm Beach, FL 33401 | 561.337.3125 Branch Office: 2010 Main Street, Suite 1220, Irvine, California 92614 | 800.814.8742Securities offered through Financial Network Investment Corporation, Member SIPC. SageView Advisory Group and Financial Network are not affiliated companies.
