I’ll summarize my takeaways below, but if you have 20 minutes, watch this entertaining segment from John Oliver: “Retirement Plans: Last Week Tonight with John Oliver”
He discusses how anyone can call him or herself an advisor without having any required credentials. He further notes that even the most credentialed advisors don’t have to work in investors’ best interests and, in fact, sometimes fund companies provide advisors incentives for selling clients investments like annuities that are not in their best interests. Oliver even quotes a report from Massachusetts Senator Elizabeth Warren that details perks ranging from cruises to fake Super Bowl rings for selling high commissioned products.
Of course, the future enactment of the Department of Labor’s (DOL) Fiduciary rule will force anyone providing retirement advice to act as a fiduciary, but Oliver points out that the brokerage world is still attacking the ruling. Also, the DOL rule applies only to retirement advice. Brokers will still be free to sell high commissioned products in other investment accounts.
Oliver also urges investors to contribute to their 401(k), but to watch the fees. Pointing out that “compound interest works both ways,” he notes that as your retirement grows, so do the fees going to the fund companies. Over time, those fees, which he describes as termites, too small to see, but potentially disastrous, can take a major bite out of your savings. For that reason, he correctly suggests investing in passive index funds over active mutual funds. In fact, his research caused him to fire his company’s high-cost 401(k) provider.
Oliver summarizes his retirement planning advice this way:
- Start saving as soon as you can for retirement.
- Most people should invest in low cost index funds and rebalance investments once a year.
- Ask any advisor you consider working with “Are you a fiduciary?” If the answer is no, run.
- As you get older, begin to shift some of your assets from stocks to bonds.
- Keep mutual fund fees under 1%.
I enjoyed watching this video agree with his points. In fact, I might add that the weighted average of your portfolio’s mutual fund fees should be under 0.50%.
If you have questions or would like to get a copy of a fiduciary questionnaire to help you determine if your advisor is a fiduciary or a broker, call my office or send an email asking for the “Fiduciary Questionnaire.” You may also want to click on the following link to watch a PBS Frontline documentary titled “The Retirement Gamble.”