mike734

Do any of you let a third party access your 401k by giving them your login and password to allow them to manage your 401k? What do you think of the services they provide?

globalexpress

There are some management companies, financial planners or whatever that will want to directly manage your account like that. Personally, I wouldn't let them do it. What if a guy kidnaps your financial planner's kid and tells him/her he can't have his kid back until he invests all of his clients' money in some penny stock pump and dump scheme that the kidnapper profits from? What if your financial planner has a gambling problem and does the same? A drug problem? Make up your own favorite worst case scenario.

Why can't they just tell you what to do and then you execute it yourself?

flap

There are many managers out there that would be happy to manage your money, and there are numerous firms that specialize in pilot accounts.

The vast majority charge about 1% per year and often times they will have the ability to deduct that fee directly from your account.

The 1% is their fee, and you will also have to pay the expense ratios of the underlying investments.

The managers will then build you a (hopefully) well diversified portfolio with an appropriate mix of equity/fixed income for your age and personal risk tolerance.

Your plan probably has this already in their version of a Target Date Fund. These are funds that are single investment funds designed to provide proper diversification and age appropriate exposures through an entire career. For example, if you plan to retire in 2025, then you would put 100% into the 2025 fund.

It's not sexy, but it works. Any other manager you hire will build you his version of the fund and charge heavily to do so. The target date funds are typically very economical and all inclusive from a fee perspective.

There are many participants that need some hand holding and that is fine. An advisor may help you from making stupid mistakes or trying to time the market.

Obviously, there is more to financial planning than managing your 401(k) account and a good CFP can help with insurance, taxes, health care, SS, trusts and estate planning.

I prefer to get advice on these issues from professionals on a hourly basis and manage my own money.

At this point, paying 1% a year would exceed $10,000 in unnecessary fees which is a lot of money for something already provided in my plan.

If you go the advisor route, you will have to keep their feet to the fire. What did they do for their thousands of dollars?

How did their portfolio perform on an after fee basis.

What amount of risk did they take?

Why did they under-perform the market as a whole?

Lots to think about and not trying to slam the managers. There are some good managers out there, but they are all expensive and up to you whether they are worth the cost.

If you are an ALPA pilot, you can contact Schwab and identify yourself as an ALPA pilot and that opens up a substantial amount of free services from their advisors.

One last issue. Many advisors will work relatively cheap if they feel they can get your account at retirement. Some will even give you financial incentives to roll it over. At that point, they can start to draw fees and they can be substantial.

I would take a good look at overall financial picture and decide if you need help on the 401(k). If having an advisor helps you sleep at night, then might be worth the 1%+ it will cost. The single greatest thing you can do is to contribute to the 401(k) in addition to any company contributions.

DAL 88 Driver

I'd be careful with this. The following is an excerpt from an article that was written in 2008, but I think it still applies today. Anyway, some good food for thought on target date funds:
________________________________________________
Lately, I have been getting a lot of questions about target date funds. No wonder. Target date funds are being touted as the answer to our retirement investing conundrum. They are being proposed as the default choice in a 401(k) plan. And they are sprouting up like weeds. So should you put your money in a target date fund?


The short answer is … only as a last resort. But first things first.
A target date fund is a mutual fund with an asset allocation tied to your target retirement date. If you think you will retire in 20 years, you would pick a 2030 target date fund, with 2030 being roughly the year you plan to retire.



These funds are really funds of funds. The fund manager chooses other funds, from the same fund family, in percentages that make up a reasonable asset allocation given your time until retirement. It is the fund managers job to adjust those percentages for you automatically as your retirement date approaches, becoming progressively more conservative. These funds typically hold a mix of stocks, bonds and cash and will often include an allocation to foreign equities as well.


It’s no wonder I have been getting so many questions about target date funds lately. In 2000, there were only 23 target date funds in existence, with just about $8 billion in assets. Today, there are over 250 target date funds, with $160 billion in assets, and more being brought to market every day. But should you plunk your retirement savings in a target date fund and forget it?


I don’t think so and here is why …


1. One size doesn’t fit all, with any investment.
2. Target date funds are too conservative.
3. There are better ways.


Target date funds are being touted as one stop shopping. Just pick a retirement date, pick the fund with your retirement year in the name, and let the fund manager do the rest. But does it really make sense that the CEO of a company should have the same asset allocation as a clerk in his Accounting Department? Not likely!


An investor has to put together an asset allocation based on his or her long-term objectives, risk tolerance, time horizon and temperament. You choose the combination of investments that has the highest probability of satisfying each of those criteria over your anticipated time horizon. It is possible that is a single investment but often it is not.


My biggest gripe with target date funds is they are too conservative. Let’s make some assumptions about your retirement. The first is your retirement will last thirty years. That is the joint life expectancy of a 65 year old, non-smoking couple.



Second is that inflation will average 3.5% over that 30 years. Forget for a moment that seniors experience inflation at a greater rate than the nation as a whole, largely because of the cost of healthcare. We’ll just use the historical average.


Third is that you will begin withdrawing funds from your portfolio at the rate of 4% a year. And fourth, let’s assume your marginal tax bracket will be 25%. Now, what is the return required over your 30 years in retirement to pay Uncle Sam, pay you, and still get enough growth in your portfolio to keep up with inflation?
The answer is 10%. That is (4 + 3.5) / (1-.25) or your withdrawal rate plus inflation divided by one minus your marginal tax rate. Which means we have a gap. Our current way of thinking about investments is too conservative.
If you model the traditional 60%/40% retirement portfolio, the expected rate of return over 30 years is only 8%. A 4% withdrawal rate may give me a high probability I won’t run out of money but it almost assures that I won’t be able to buy anything with the money I have left. In order to protect against conversion risk, target date funds, because they are based on asset allocation models designed for our parents and grandparents, get too conservative too fast.



What worked for previous generations will not work for ours. We are the first generation solely responsible for funding our own retirement. Unfortunately, no one told us that until, for many of us, it was too late. On top of that, we are living longer. Life expectancy has increased by ten years. That is both good news and bad news. That’s ten more years to travel, play golf and spend quality time with our family. But it is also ten more years without a paycheck.


Like it or not, we have to come to grips with the idea that our investment time horizon isn’t our retirement date. Our time horizon extends over our entire lifetime. Moreover, it seems plainly obvious to me our lifestyle in retirement is going to be a function the amount of our portfolio we leave in stocks. Unless you are one of the few with more than enough money, that is the only way our portfolio can keep up with inflation, taxes, and still support a reasonable lifestyle over 30 years.


Target date funds don’t do that. They are by nature too conservative.
My regular readers and radio show listeners know I don’t like mutual funds, as a rule. I especially don’t like actively managed mutual funds because their high fees guarantee over time you will under-perform the market itself. The only time I would ever use a mutual fund is in an employer-sponsored retirement account, like a 401(k) or 403(b) and that is just because I don’t have a choice.


Most plans are adding target date funds as an investment option. Should you choose it?


Only as a last resort. I believe a well-thought out asset allocation of low-cost index funds is the much better plan. But if your plan doesn’t offer low-cost index funds, or you aren’t willing to spend the time and money required to learn how to maximize your 401(k), (which is minimal BTW), then target date funds are far better than just picking the funds with the best historical performance and/or allocating between stocks and bonds based on what you think the market is going to do. That is a sure fire way to waste your retirement funds.


Bottom line on target date funds … they aren’t the panacea the fund industry would like us to think they are. Do the work. You can do better.

mike734

Those scenarios are too far fetched but your point is well taken. One way to help ally those fears is to use an adviser that signs on as a fiduciary. Also, even though they can trade they are not account owners and can not withdraw money, for example, without your permission.

That is not the case for my 401k however. I have heard from many advisers that want to run precisely that scheme for my other investment accounts. My 401k does not allow third party withdrawals of fees from advisers.

UASIT

Interesting...I have a friend that is also looking for a manager. His reason is so he doesn't have to do it. He just wants a 5-8% return. What are your reasons? Maybe if you want modest returns its better to do it yourself...

FYI...I told my friend to just continue to manage on his own...He's done really well so far...

GogglesPisano

Stick with plain vanilla low-fee index funds. The market will make money for you, don't let an "adviser" skim 3-5% off your principle every year.

This is well worth an hour of your time.... Video: The Retirement Gamble | Watch FRONTLINE Online | PBS Video

mike734

I don't know any advisers that charge that much. 1 -1.5% is the norm. But I agree with you, index funds or at most ETFs are the way to go.

DAL 88 Driver

Unless you have a brokerage link that allows you access to investment vehicles other than mutual funds and ETF's, I think you are absolutely correct.

At Delta, we have expanded brokerage link capability and I am able to use the Snider Investment Method in my 401k. That is my first choice for managing my investment/retirement accounts and it is working very well for me. But if you don't have this expanded capability at your company (most don't), I would suggest checking with Snider Advisors about the 401k course they used to offer for free. As I understand it, it's a systematic way of managing your 401k yourself using ETF's. I suspect it would be very good and, if I didn't have the ability to do the Snider Method, that is what I would be doing with mine.

I can't find this course on their web site to the public, but I can find it when I log in as a client. Might be worth a call to them to see if they still offer this.

globalexpress

You know what's far fetched? Some guy named Bernie running a Ponzie scheme milking his investors for somewhere between 10-20 Billion.....that's billion with a "B." And he milked both the unsophisticated individual investor and the "professionals" who should have known better alike. I like to protect myself from both the likely and far fetched scenarios.

Look, I see this stuff all the time. Guys feel like their 401K is wandering aimlessly. Guys hear of "a friend' who made a killing on ________ and they feel left out or that they are screwing something up with their investments because they're "only" making 7% or some other single digit number. We're inundated with advertisements, recommendations, commercials that all say "we're the best." Just let "us" manage your account and the dollars will come rolling in!

I'll tell you up front I HATE financial planners. The VAST majority of them are more concerned about THEIR interests than yours. Ask most financial planners to sign a fiduciary agreement and you'll likely witness a tap dance that would make Fred Astaire look bad. I actually attempted to get into the financial planning industry several years back, but even the interviews left me feeling slimy. The financial planning business sucks. BEWARE.

If you want good advice, don't worry about whether or not some guy can access your 401K account or pull his fees directly from your 401K. Who cares. Pay the guy out of pocket. It costs the same. It's probably good that you pay directly out of pocket anyway. When you're writing that check for $400/month because some guy is managing your $500K portfolio @ 1% AUM, it will make you ask yourself a very important question: What did this guy do for me this month that is worth $400?

Go to the Garrett Financial Planning Network and find a guy that charges by the hour. Bonus if he uses index funds. Pay a few thousand dollars up front to come up with a comprehensive plan that includes retirement, insurance, and estate planning. Let him come up with a plan and YOU execute it. After a life event or every few years, go back and pay the guy for a few hours of work to make sure you're on track and to make the appropriate course corrections. That's how to use a financial planner. He doesn't need to have his hand in your pocket at 1% (or more!). He doesn't need to be trading in your account. He educates you and your spouse and then you go off and execute the plan as directed.


P.S. I wouldn't touch the Snider method with a 10 foot pole. Target date funds are neither good nor bad any more than a hammer is a good or bad tool.