How Else Are You Supposed to Decide?

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As my husband and I were sitting with a couple of great friends watching our young girls playing together, we were lamenting about our retirement plans, or lack thereof. It seems we both have dance lessons, proms, college degrees and weddings to pay for in our futures. The conversation eventually turned to my friend’s 401(k) account and how he had come to make the investment decisions that he had. He said, “I just look at the performance and choose the best one.  How else are you supposed to decide?”

My friend had fallen into the trap that so many average investors out there fall into and that is selecting his investment allocation on performance alone. This can be a very risky way to plan your retirement future. As I explained to him, there is a very good reason why our industry’s favorite disclosure statement is “past performance does not indicate future results.” Take a look at the chart below. It illustrates the volatility of asset class returns from year to year by ranking certain key indices in order of performance. You will note that top-performing asset classes in a given year do not tend to repeat their top performance in following years and the lowest performing asset classes often outperform in subsequent years. Accepting that simply selecting your investments based on historical performance may not be the best way to go, you still have to answer the question, “How are you supposed to decide?” If you are a member of your company’s investment committee or if you simply have an investment account of your own, this can be a very important question to ask. The committees with whom we work decide the investments offered to the plan by examining risk tolerance, time horizon, and diversification.

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First and foremost, it is important to analyze and understand the risk tolerance of the group who will be utilizing the investments. Risk tolerance can be thought of as how willing a group is to subject the account to potential losses in order to get potential gains. In other words, are you or your group able to stomach the thought of losing in the short term in order to reap long term gains? Or at the first sight of loss, are you going to pull your money and run? Risk tolerance for an individual may be a little easier to determine than for a group; in determining what is appropriate for a group of employees, you have to use different methods. When we analyze appropriate investments for a 401(k) plan, we look at upside/downside capture ratios in order to help determine if the investment manager is taking an appropriate amount of risk and being appropriately rewarded for that risk. Upside/downside capture can also help determine how a manager will perform in down markets and manage the risk for the employee population as a whole.

Another factor to consider is the time horizon of the investor or group of investors. In application for a 401(k) plan, we analyze employee demographic information to determine the age range of the workforce, which can assist us and committee in deciding an appropriate investment menu. Additionally, we review with the plan sponsor whether the employees typically leave their money in the plan at retirement or if the funds are removed prior to or at retirement. This helps us to determine the time frame for the team of employees.

Finally, diversification in the investment menu can be important in shaping successful investment strategies. We’ve all heard “don’t put all your eggs in one basket” and that basic tenant best describes the idea of diversifying investments. As the chart above shows, if you have all of your investment dollars in one specific type of investment, there is a better chance that you will experience more volatility then if you spread your assets over a variety of asset classes.

Deciding how to allocate your personal investments or how to best design a 401(k) menu is challenging and it may seem that the easiest path is to make those decisions based on performance. However, if you or your 401(k) committee would like to take a more in depth look at the appropriateness of your investment strategy, please contact me today.

 

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

Contact Jamie

Follow Jamie on LinkedIn

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SECURITIES AND ADVISORY SERVICES OFFERED THROUGH COMMONWEALTH FINANCIAL NETWORK, MEMBER WWW.FINRA.ORG/WWW.SIPC.ORG, A REGISTERED INVESTMENT ADVISER.  THIS COMMUNICATION STRICTLY INTENDED FOR INDIVIDUALS RESIDING IN THE STATES OF AL, FL, GA, KY, LA, MD, MS, OK, PA, SC, TN, TX. NO OFFERS MAY BE MADE OR ACCEPTED FROM ANY RESIDENT OUTSIDE THESE STATES DUE TO VARIOUS STATE REGULATIONS AND REGISTRATION REQUIREMENTS REGARDING INVESTMENT PRODUCTS AND SERVICES.
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Three Reasons It’s Time to Hire a Plan Professional Now

Three-Reasons-It's-Time-to-Hire-a-Plan-Professional-Now

My assumption is that most of you who are reading this blog post already have a financial advisor with whom you work on your company’s 401(k) plan. However, as with most things in life, not all advisors are created equal and finding the best fit for the needs of your plan and participants can be essential to the success of the plan.

1 – Your Plan Needs an Advocate

There are so many working parts that go into running a successful retirement plan. Some tasks are large in scale and may include designing a plan document that encompasses a strategy to increase participation and deferrals in order to drive retirement readiness. Others are smaller, day-to-day tasks like submitting employee contributions and processing loans.  Whatever the task that you are tackling, the job can be made easier by working with a financial advisor who understands the needs of your plan and how to accomplish them. Additionally, the goals of your plan need to be addressed. Do you want to benefit the owners of the company? Is your company invested in the retirement futures of your employees? Whatever the reason, it is important to match the goals of the plan with the financial advisor. Your advisor may have a knack for working with business owners and may be a good fit if your goal is to benefit the owners. On the other hand, if your focus is on the retirement readiness of your employees, then you will want your advisor to have a strong background in employee education. Again, whatever the reason, fit is essential.

2 – You Need a Partner

I’m sure I don’t have to tell you that it is becoming more and more difficult to stick to specific roles and responsibilities, no matter your job title. CFOs are faced with mounting responsibilities including forecasting and “guesstimating” tax rates. Human Resource professionals have become staffing firms, marriage counselors, and payroll processors. Not to mention, everyone at the company is tasked with moving towards the goal of growth. With all of the noise you deal with day in and day out, you need a financial advisor who can do some of the heavy lifting for your plan. In my role at Grinkmeyer Leonard Financial, I only serve the needs of our retirement plan clients; therefore, I can focus all of my time on the latest trends, rules, and regulations impacting qualified retirement plans. As an indication of my commitment to 401(k) plans, I have earned the following designations: Certified Fiduciary Plan Advisor (CFPA), Accredited Investment Fiduciary (AIF), and Qualified 401(k) Administrator (QKA). While I most certainly am not saying your financial professional must have these designations to be highly qualified to work with your plan, I am encouraging you to research the professional’s background and determine if it will take your plan to the next level.

3 – Your People Deserve the Best

We’ve all heard, said, or read that your people are your most valuable resource; the question is if you are treating them as such. When you hire someone, you expect them to come to work day in and day out and give you their best effort. By offering a well-designed 401(k) plan, you are also taking a step to give the best to them as well. As I have documented in previous posts (It’s Not All About the Money), offering a 401(k) plan can help reduce financial stress, bolster workplace productivity, and make employees more loyal. At Grinkmeyer Leonard, Caleb Bagwell takes the lead in coming up with new, innovative ways to reach your employees and engaging them in becoming active participants in the plan and in saving for their future.

Whatever your reason, working with a qualified retirement plan advisor can help alleviate some of the stress of running a plan, can elevate your plan, and can make your people engaged.


Jamie Kertis
, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

Contact Jamie

Follow Jamie on LinkedIn

Follow Jamie’s Blog

SECURITIES AND ADVISORY SERVICES OFFERED THROUGH COMMONWEALTH FINANCIAL NETWORK, MEMBER WWW.FINRA.ORG/WWW.SIPC.ORG, A REGISTERED INVESTMENT ADVISER.  THIS COMMUNICATION STRICTLY INTENDED FOR INDIVIDUALS RESIDING IN THE STATES OF AL, FL, GA, KY, LA, MD, MS, OK, PA, SC, TN, TX. NO OFFERS MAY BE MADE OR ACCEPTED FROM ANY RESIDENT OUTSIDE THESE STATES DUE TO VARIOUS STATE REGULATIONS AND REGISTRATION REQUIREMENTS REGARDING INVESTMENT PRODUCTS AND SERVICES.

It’s Not All About the Money

It's-Not-All-About-the-Money

The message concerning the advantages of a 401(k) including deferring more savings to the maximum limits, diversifying investments, and taking advantage of the company match has been beaten like a drum into employees’ and employers’ minds for the last several decades. Advisers talk about how adding the latest alternative investment can add 15 basis points of alpha to the plan or how increasing the company match can allow the highly compensated owner group to annually contribute 0.5% more to the plan. The focus is almost always solely on the financial aspects of what the 401(k) plan can provide and rarely, if ever, on the role that offering a quality plan can mean to your company’s ability to hire and retain top talent, foster employee loyalty, and contribute to your people’s mental well-being. At Grinkmeyer Leonard Financial we want to change the discussion surrounding the importance of a 401(k) plan from just numbers to people.

One of the first items to consider when addressing your company’s workforce is how to attract good people and then how to keep them. Increasingly, just offering more money is not cutting it when it comes to recruiting top talent. The Tower Watson’s Global Benefit Attitudes survey released in February 2016 highlighted that nearly 3-in-10 employee respondents prefer superior retirement or health benefits to pay and bonus, as well as almost 3-in-5 prefer some alternative to pay and bonuses. Employees want to feel as if they are valued by their employer and can see benefits as a clear expression of that value, more so than being offered an extra $0.50 per hour. Here is where plan design can have a meaningful impact on the company and its employees. If structured correctly, a match formula or profit sharing allocation in combination with a vesting schedule, can accomplish the goal of rewarding employees while, at the same time, giving them incentive to stay with the company.

Assuming you have hired the top people for the job, the focus should turn to keeping those people engaged and focused on doing their best work. Stress is a productivity and morale killer and more and more, saving for retirement is being cited as a top stressor. The good news is that you, as an employer, have the ability to help reduce that financial worry simple by offering a well-designed retirement plan. The Tower Watson’s Global Benefit Attitudes survey showed that in 2015, 79% of US respondents indicated that their company’s retirement plan is the primary way that they save for retirement. A 2016 study published by Lockton Retirement Services titled “Finding the Links Between Retirement, Stress, and Health” found that over half (52%) of their respondents reported that their employer’s retirement plan eased their financial concerns “a great deal”  and nearly all respondents (95%) reported that the retirement plan helped “a little” or “a great deal”.

Offering a retirement plan does not just reduce stress, but it also helps bolster confidence in a person’s ability to be financially secure in retirement. The 2016 Retirement Confidence Survey provided by the Employee Benefit Research Institute, in their March 2016 EBRI Issue Brief, reports that 74% of respondents with a retirement plan were “very confident” or “somewhat confident” that they will have enough money to live comfortably in their retirement years. This is in contrast to 39% of respondents with no retirement plan who responded they are either “very confident” or “somewhat confident”. (Such a retirement plan includes the respondent or their spouse having at least one of the following: IRA, DC, or DB plan.)

You may be thinking, “Sure, it’s great that my employees are less stressed and not as worried about retirement, but what does that mean for my company”? One well documented benefit is that employees who experience lower levels of financial stress are healthier and therefore, incur less cost to the employer in the form of absenteeism and lost productivity. The chart below from the Lockton Retirement Services illustrates the physical symptoms that manifest themselves at work.

Experienced Physical Symptoms Almost All the Time/ Frequently While at Work

Percentage of Respondents in These Categories

Ahead in Saving for Retirement

On Track in Saving for Retirement

Behind in Saving for Retirement

Fatigue

19%

19%

31%

Feeling Overwhelmed

9%

13%

31%

Anxiety or Nervousness

7%

10%

23%

Headaches

5%

10%

23%

Clenched Jaw or Teeth Grinding

4%

11%

16%

Insomnia

3%

7%

11%

Upset Stomach

5%

4%

14%

Depression

3%

6%

11%

Sense of Impending Doom

1%

4%

11%

I think that we can all agree that when a person is focused on dealing with physical ailments, they are less likely to be able to focus on getting their job done right.

As documented in this post, there is a significant amount of research to indicate the direct correlation between financial stress, physical ailments, and offering a retirement plan. When you look past all of the numbers and the statistics, what it really comes down to is the people in your organization and their quality of life now and in the future. Let us help you put the focus back on your people.

 

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

Contact Jamie

Follow Jamie on LinkedIn

Follow Jamie’s Blog

SECURITIES AND ADVISORY SERVICES OFFERED THROUGH COMMONWEALTH FINANCIAL NETWORK, MEMBER WWW.FINRA.ORG/WWW.SIPC.ORG, A REGISTERED INVESTMENT ADVISER.  THIS COMMUNICATION STRICTLY INTENDED FOR INDIVIDUALS RESIDING IN THE STATES OF AL, FL, GA, KY, LA, MD, MS, OK, PA, SC, TN, TX. NO OFFERS MAY BE MADE OR ACCEPTED FROM ANY RESIDENT OUTSIDE THESE STATES DUE TO VARIOUS STATE REGULATIONS AND REGISTRATION REQUIREMENTS REGARDING INVESTMENT PRODUCTS AND SERVICES.