Objective information about financial planning, investments, and retirement plans

My Thoughts on PBS Frontline The Retirement Gamble

Share

Gamble

The PBS show Frontline recently aired The Retirement Gamble, an investigative documentary on the state of retirement savings and the problems with 401(k) and similar retirement plans.  The show did a great job of highlighting a number of issues and was pretty scathing in its treatment of the financial services industry and workplace retirement savings plans.

As a professional who serves as a financial advisor to a number of 401(k) plan sponsors as well as to individual clients (most of whom are either close to retirement or in retirement) I watched this broadcast with great interest.  Here are my reactions to what I saw.

Key issues highlighted by The Retirement Gamble

  • The high fees imbedded in some retirement plans, often these fees are next to impossible for the average participant to uncover.
  • Poor investment choices offered in some plans.
  • There are a lot of lousy 401(k) plans out there.
  • The confusion and frustration that many retirement savers in 401(k) and other defined contribution plans feel due to the fact that they are responsible for accumulating enough for retirement.  This is in contrast to the era when many folks were covered by a defined benefit pension plan where the investment risks and responsibilities for funding the plan were on the employer’s shoulders.
  • While the issues highlighted were not new to me nor to many of us in the industry, I think this documentary was a bit of an eye-opener to many in the general public.  I say this as there have been several surveys taken over the years where a shocking number of investors responded that they had no idea that there were fees charged by their 401(k) plan.

Where the documentary fell a bit short in my opinion 

As regular readers of this blog and those who follow me on Twitter and other social media outlets know, I am highly in favor of lower retirement plan fees and anything that increases transparency for investors.  That said I thought The Retirement Gamble had a very decided bias against the financial services industry and almost felt as though they had come to their conclusions before they started on the project.

  • The show did not highlight a single good 401(k) plan and there are many out there.
  • The show did not highlight a single person who had used the 401(k) to accumulate a significant nest egg. I have the privilege to serve as advisor to a number of folks who have done just that.
  • While I am an admirer of Vanguard founder John Bogle and use index funds extensively in the 401(k) plans that I advise and in the portfolios of all clients, I disagree that there are no actively managed funds worthy of investor’s dollars.  That’s not to say that these are the majority of active funds, but they do exist.  Finding them and determining if they are an appropriate investment choice for a plan sponsor to offer is what plan investment consultants are paid to do.
  • While the program did mention advisors who act as Fiduciaries in passing, the focus was on those advisors, reps, and brokers who sell plans and/or suggest investment options that serve to line their pockets sometimes at the expense of the plan’s participants.  Why not interview some advisors who do the right thing for their plan sponsor clients and the participants of those plans?
  • The worst part of The Retirement Gamble was that while many problems and issues were brought to light, there was little in the way of advice or suggestions for plan participants on what to do to improve their situation.

I do have to say that the most amazing part of the show was the interview with the head of Prudential Retirement Christine Marcks.  She insisted that she was unaware of any of the research showing the advantages of low cost index investing over high cost active management.  While she may or may agree with the findings, the fact that she insisted that she was unaware of this research was jaw-dropping in my opinion.  I think Ms. Marcks should have been coached prior to her appearance by someone at Prudential.

Retirement calculator

Check out the retirement calculator tool below for a look at your situation. While this is an excellent tool, please remember the results only provide a first step in the retirement planning process.  This is not a substitute for an in-depth financial plan done by a qualified professional.

Loading Financial Calculator...

 

The documentary is very worthwhile and if you haven’t seen it there is a link to the video on our Resources page.  Please weigh in below as to your thoughts on The Retirement Gamble.

Please contact me at 847-506-9827 for a free 30 minute retirement planning consultation and to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.   

Retirement plan sponsors, do you need an independent review of your company’s plan?  Do you need help selecting a new plan provider?  Are you looking for ongoing financial advice to help you meet your fiduciary obligations and to provide a superior retirement savings vehicle for your employees?  Please feel free to contact me to learn about our investment consulting services for retirement plan sponsors.

The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com. If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. Click on the Amazon banner below to go directly to the main site or browse the selections in our Book Store.

Photo credit:  Flickr

Enhanced by Zemanta

If you enjoyed this article, please enter your email address to receive the latest updates about financial planning, investments, and retirement plans.

Comments

  1. Diana says:

    Thank you for posting a balanced reaction. I watched the documentary with interest, and while it did not advance any new ideas, I think the general population needs a higher awareness of the ideas that were set forth. I have been ignoring my industry’s reactions due to the vehemently indignant headlines they’ve posted.

    • Roger Wohlner says:

      Diana thank you for your comment. The show did a good job of highlighting a number of issues that are important to retirement savers and that likely many were no aware of. However I think the show would have been far more effective if they had not started with such a huge and obvious (at least to me) bias as to their conclusions.

  2. Madblogger says:

    I, too, found the program on the unbalanced side and agree that the Prudential rep’s admission about index funds jaw-dropping. I wonder where her PR rep was because that was damaging to her firm.

    • Roger Wohlner says:

      Thanks for your comment. The Prudential thing was unbelievable in this day and age. The show did a nice job, but the obvious bias prevented it from truly being an outstanding documentary.

      • I completely agree. I thought the show raised some important points, but was woefully one-sided. I would have preferred that they had interviewed people who could represent the “other side” competently.

        • Roger Wohlner says:

          Thanks for your comment Julie. Overall the show presented some great information, but it would have been much more beneficial if they had been a bit more balanced in their approach.

  3. I did not catch the documentary, but I’ve heard a lot about the topic recently. I fully agree with you that people in the financial services industry get a bad rap, but there are quite a few who are looking out for their client’s best interest (like you). These people never seem to get much attention because all of the attention goes to the greedy ones.

  4. Bryan says:

    You pointed out exactly what I was thinking:

    “The show did not highlight a single good 401(k) plan and there are many out there.”

    “The show did not highlight a single person who had used the 401(k) to accumulate a significant nest egg. I have the privilege to serve as advisor to a number of folks who have done just that.”

    All they did was point out the bad, while failing to suggest or advise on the good plans. Which makes it less balanced and informative as it could have been.

  5. JoeTaxpayer says:

    I saw this show as well, and putting up my own thoughts tomorrow.
    One that I’ll share now – no mention of matching funds. A dollar for dollar match on the first 6% of income goes a long way to offsetting even a 1%+ fee, which is why, I thing we agree, there’s a strong incentive to grab that free money.

  6. Interesting comments. Many of you agree that the program was biased and yes it was, but I have to say that the filmaker gave the Prudential and the JP Morgan officers plenty of chances to defend their industry and their positions and both of them failed miserably. They can’t possibly have been as unprepared as they seemed, so perhaps the filmmaker cherry-picked their responses to make them seem worse than they were.
    As a participant, between me and my husband, in a number of 401(k) plans, I see two huge problems, neither of which was adequately addressed in the program. One is the agency issue of “who gets to decide.” As a newbie MBA at a startup, I was charged with implementing a 401(k) plan for our company back in the early ’90s. Not having any serious investment experience at the time, I was at a loss, and thank goodness, found a kind and ethical plan administrator who helped me set up something simple and useful. But I was lucky. That CAN’T possibly be the right way, from a public policy perspective, to determine the financial prospects of the many, many small business employees in this country.
    The other big problem is that the typical 401(k) options are so limited, and employees are completely at the mercy of their HR departments and whatever plan advisor they choose to determine those options for them (and they rarely seem to change!). They can do a good job, or they can be like the manager at the large global bank who manages my husband’s 401(k) – pick only load-bearing mutual funds, never contact the client to suggest alternatives for growing cash balances, and bristle defensively whenever their judgment or advice is questioned. Thank goodness his firm finally offers a PCRA as an option, but for so many out there, they are stuck with this type of situation. And for the uneducated, they are just plain victimized by such a structure.
    As a society we need to think through how to make plans more versatile, how to convince people to participate (and give them incentives to do so), and how to create simple, cheap, but productive alternatives for the unsavvy, the young, and the people who can barely afford to save 1%. All this as the markets turn into casinos. It’s a big task.

    • Roger Wohlner says:

      Kathryn thank you for your comment and for visiting the site. Your first point about the Pru and the JP Morgan folks is well taken. But as an example of the program’s bias, why didn’t they interview an advisor/consultant who acts as a Fiduciary, helps sponsors by instituting a prudent investment process for managing the plan and so on. Yes there are “bad actors” in the 401(k) industry but there are also folks who do it right.

      I understand your frustration as a participant especially given the personal experiences you cited.

      I can say this from my own experience in working with a number of plan sponsor clients. My clients tend to be concerned with offering their employees the best possible retirement savings vehicle that they can. My clients generally pay my professional fees from company, not plan assets. My clients are concerned with their Fiduciary obligations and potential liabilities, but they recognize that by working to meet these obligations they will be offering a better plan with better investment choices for their employees. With my help they continually push the plan provider to allow them to offer better (cheaper) share classes of the funds offered in the plan. I can site an example of a plan administered by a major fund complex where through a collaboration of the company’s investment committee and myself, and in cooperation of the plan provider we have taken a plan that was a solid one seven years ago and have transformed it into an outstanding one.

      My point is not to toot my own horn but rather to point out that by not profiling good advisors and good plans the show did viewers a great disservice. How can you ask a company to offer a good plan if they don’t know what one looks like? Also wouldn’t it have made sense to profile a few folks who have used their 401(k) to accumulate a substantial nest egg? Again teach by example.

      I applaud this program and that is one reason that I included a link on this site. However this program could have been so much more effective had the producers taken a more balanced approach.

  7. Genuine fiduciaries are not threatened by the broadcast. They get it 100%. While there are good 401k plans on there, those examples are few and far between.
    What they left out in our interview (Dan and I were the gay couple) was after our tech wreck, we revamped our portfolio by getting out of the horrific actively managed tech sector funds and into Vanguard low cost index funds, had a fix accounted that match our ages, rebalanced and saved about $150,000 in fees in the last ten years. Bogle’s numbers are right on.

    • Roger Wohlner says:

      Thanks for your comment Steve. First I applaud you and Dan for taking charge of your financial lives and moving on financially.

      As an advisor who acts in a fiduciary role with his retirement plan, foundation, and individual clients I didn’t feel the least bit threatened by the broadcast. What I did feel was that the show’s producers were so biased that I suspect that they started out with a conclusion and were going to build to that conclusion no matter what they found from their investigation. Don’t get me wrong, there are plenty of bad plans and advisors who do not put the interests of clients/participants first. They should be exposed and called out. However focusing only here leaves the impression that all plans/advisors are bad and might actually discourage some viewers from taking charge of their retirement as the two of you did.

      In the end journalism should be fair and unbiased, the PBS show was anything but that in my opinion.

      I use Vanguard index funds and ETFs extensively and I have a lot of respect for John Bogle. However there are solid actively managed funds. Finding and monitoring them takes work and an advisor who knows what he or she is doing, this doesn’t mean that it is not a worthwhile endeavor. I advise several retirement plans with a mix of index and active choices and I think you’d agree that the overall expenses of these plans are quite reasonable.

      One thing I’ve noticed is that the index choices in several of these plans don’t attract the dollars I would have expected or hoped for.

      • Hi Roger,
        Your first “however” has to do with fear. People are afraid because of 2008. They have suspected something is wrong with the entire financial industry for five years now. One major reason why so much money is in MM accounts.
        Your second “however” has to do with the active/passive debate which will never end. Allow me to take a stab at this: Sure, there are excellent actively managed funds that will beat the pants of indexes, but there are 3 problems that the active side cannot address: 1. You can’t tell me ahead of time which ones will beat the indexes, 2. Actively managed funds are short term with many going under because of survival biases. Warren Buffett and I are long term buy and hold and, 3. They cost more than passively managed funds.

        Take a look at these reviews of PBS Frontline’s excellent and timely report:
        Here is National Association of Professional Financial Advisers press release: http://www.napfa.org/UserFiles/File/NAPFAFrontlineRelease.pdf. NAPFA GETS IT!
        ARY ROSENBAUM, Ary’s comment: http://therosenbaumlawfirm.com/blog/?p=1362. Ary gets it too!

        Lastly, Frontline broadcasted the solution all through the show. Bogle and the indexing strategy. Look for indexes in your 401k plan, find a genuine fiduciary financial planner from NAPFA to help you set up a plan and read a book or two on investing and bang, the problem is fixed.

        • Roger Wohlner says:

          Steve I don’t think that you and I really disagree except on two points. First I thought the show was biased and had a pre-set conclusion. Second I am a huge user of index funds/ETFs mostly from Vanguard across my client, institutional, and retirement plan clients. Where we disagree is that I don’t view index funds as the ONLY solution at the exclusion of all other funds/products.

          As far as what NAPFA and Ary had to say, again I don’t think I differ much from either of them.

          As far as you and your partner as a I recall you were both teachers. I can think of few groups who are the recipients of worse “advice” in many cases from the “nice annuity sales types” that show up for a chat in the cafeteria. School districts should outlaw this practice and bar these folks from the school grounds in my opinion.

          That said here is some data as of 3/31 from a local 401(k) plan that I advise. The plan offers the Signal shares of Vanguard’s 500 Index, Growth Index, Total International Stock Index, and Total Bond Index. In total 10.5% of the plan’s assets were invested in those funds.

          Additionally the same plan offers the Vanguard Target Date funds, essentially funds of index funds with very low cost. In total 12.8% of the plan’s assets were invested there.

          My point is that you can lead a horse to water but you can’t make them drink.

          Thanks again for your comments.

    • N. Catz says:

      I recently bought Steve and Dan’s book called “Late Bloomer Millionaires” to find out more about their financial recovery. Between the book and the Frontline piece, I think this has been eye opening for the average person like me who hasn’t been paying much attention to their 401(k) for decades. As I approach 50 next year, it gives me hope that it’s not too late to turn things around with a new strategy from what I’ve learned about index funds and low fees. I have a lot of catching up to do, but I am educating myself as a do-it-yourself investor.

      • Roger Wohlner says:

        Thanks for your comment and kudos to you for taking proactive steps toward your retirement goals.

      • Hi Catz,
        As I was saying to Roger, just yesterday a stranger called and said that he and his wife saw the Frontline piece and both read my book. They fired their broker and found a great financial adviser from NAPFA. This adviser is so good that I cited him and his two man firm in the book. He loves the indexing strategy and Vanguard without hesitation. It’s not too late, we didn’t learn the indexing strategy until my late fifties. You are just a kid! :-)
        Have a great day and thanks for the comment,
        Steve

  8. shop says:

    It’s a good post and i really enjoyed while reading it. So thanks to it’s admin by posting it and share it with us.

  9. Dave Bonin says:

    As I look back at my 401k, I see a very nice total from my current employer over the last 13 years. Our plan is nothing special. Our investment options are limited. Still, with about an 6%-8% deduction and about a 3%-4% match, my account value has increased rapidly. If this were all my savings and this was my first job, I could retire comfortably well before 50. Oh, and I rode the market down and up in 2008-2012.

    By comparison, I rolled over 401k funds from previous employers into actively managed accounts. Their performance has been lackluster. I’m told that their plan provides a lower risk overall. Peaks aren’t quite so high, but valleys are not deep either. I’m giving them more time to see how true that is.

    What do I advise new graduates? Start saving in your 401k. Let it grow. The key is to start saving on day one so that you never miss the money and saving is a habit. When you have more money, you can look at more sophisticated savings. By then, you’ll have a tidy sum saved.

    • Roger Wohlner says:

      Dave thank you for your comments. As to your last comment you and I think alike because that is exactly what I told my 24 year old daughter (a 2010 college grad) when she started working. Thankfully she listened and has an impressive balance in her 403(b) for someone her age.

  10. Bill Cullifer says:

    Roger, Great read. In particular, I liked reading the comments and your responses to them. I seem to learn a lot more from discussions in the hallway.

    I also watched the PBS special and as a novice investor, I am still scratching my head. That said, I did some digging with my own 401k and here’s what I found out:

    * I couldn’t get a straight answer to exactly what the “fees” were in the funds that I was invested in. Turns out they call them something foreign and for obvious reasons
    * I also couldn’t easily find a prospectus on each funds that featured an historical analysis on the rate of return for each
    * Of the three reps that I talked to no one had watched the PBS show but they were aware of it
    * I couldn’t determine what the definition of an “active” trading fund was. In other words, how am I suppose to know how active the fund mangers are. In fact, I couldn’t find any detail about who they are or if the have a “fiduciary” or a sales role.
    * One of the reps that I talked to over the weeks that I made the inquires tole me that she had heard of the show and that they way she understood the situation is that the issue was with IRA’s and not 401ks. Huh?
    * All of the reps that I did talk to were professional enough and were willing to help me with whatever I wanted but had a limited idea what I was talking about. One however said shed been getting a lot of calls and transfer request to index funds.

    As a result, I did find out that I could transfer all of my funds into a Vangaurd index account without any fees and I did so (Yay)

    At the end of the day, those of you in the industry need to know that as a consumer I don’t mind paying for fees for service rendered. Particularly if I am making a profit. When you rename the fees into something foreign so you can mask the fees then that’s a whole different story.

    I’m still confused if I did the right thing but after reading all of the comments I feel good about my decision.

    • Roger Wohlner says:

      Bill thanks for your comment and for the perspective that you lend to this conversation. To address some of your comments:

      An actively managed fund (let’s use a stock fund for example) is one where the fund manager makes decisions as to which stocks to hold (and not hold) in the fund vs. a passively managed index fund that seeks to replicate the performance of its underlying index. In the Vanguard world for example the Vanguard Primecap fund is an actively managed fund that invests in large cap stocks contrasted by the Vanguard 500 Index fund which seeks to replicate the performance of the S&P 500 Index.

      I’m a bit surprised and very disappointed by the answers you received when you asked about your 401(k) fees and expenses. I would have thought that providers and advisors would be more responsive to these questions and have the answers at the ready.

Speak Your Mind

*