In the News
OCT 21, 2016
Mark Eichenlaub, a seventh-grade language arts teacher who coaches cross-country track in Flossmoor, Ill., decided to pay the fee, about 5 percent of his balance, just so that he could extricate himself from a variable annuity sold by AXA, which subtracted more than 2.34 percent of his balance each year. In contrast, large 401(k) plans charge less than half a percent annually, according to BrightScope, a financial information company.
OCT 21, 2016
Through its fiduciary rule, the Department of Labor is attempting to rein in conflicted investment advice and reduce costs for retirement savers.
However, there's a corner of the retirement market plagued by the sort of high fees and sales practices the DOL is attacking that won't be touched by the regulation: public school districts.
403(b) plans, a type of defined contribution plan for public schools, tax-exempt organizations and ministers, are notorious among advisers and industry practitioners as being a sort of free-for-all environment with multiple vendors, high-fee investment products and brokers who can camp out in a school cafeteria to try to make a sale.
Non-ERISA 403(b) plans hold roughly 57% of the $900 billion in the 403(b) market, according to a joint report from the Investment Company Institute and BrightScope Inc.
OCT 20, 2016
Plan sponsors have generally become more savvy, he notes. Leaving plan menus untouched for years is less common. Sponsors now issue requests for proposals to “benchmark” their plans to help ensure that the investments are competitive in performance and fees, even if they have no immediate plans to change the menus, he says.
But the use of a recordkeeper’s proprietary funds varies with plan size. As of the end of 2013, more than 38% of assets in plans with $50 million to $500 million were held in proprietary funds, compared to 19.6% of assets in plans with more than $1 billion in total assets, according to a report by BrightScope and the ICI.
OCT 19, 2016
We rate the nine actively managed funds and the collection of target-date funds Buy, Sell or Hold based on our analysis of the funds' performance and prospects. A Buy rating indicates the best Fidelity funds for your retirement savings from among the group of funds analyzed.
The list of funds, based on 401(k) assets under management, was generated for Kiplinger by BrightScope, a financial-information company that rates retirement-savings plans. The funds are listed in alphabetical order. We used data for the Investor share class for each fund, but your retirement plan may have access to a lower-cost share class, such as a K-class or a class called a collective investment trust (a pool of assets organized as a trust) that is run with a similar strategy to that of the mutual fund. Funds that are nominally closed to new investors may be open to participants in a 401(k) plan. Returns are as of October 17.
OCT 19, 2016
We rate the 10 actively managed funds and the collection of target-date funds Buy, Sell or Hold based on our analysis of the funds' performance and prospects. A Buy rating indicates the best Vanguard funds for your retirement savings from among the group of funds analyzed.
The list of funds, based on 401(k) assets under management, was generated for Kiplinger by BrightScope, a financial-information company that rates retirement-savings plans. The funds are listed in alphabetical order. We used data for the Investor share class for each fund, but your retirement plan may offer a different share class that presumably charges a lower fee. Note that some of the actively managed funds on this list are closed to new investors. But some funds that are nominally closed may be open to participants in a 401(k) plan. Returns are as of October 11.
OCT 14, 2016
J.P. Morgan, for example, includes an employee stock ownership plan (ESOP) component in its 401(k) plan, and company stock accounted for about 15% of the plan’s total assets as of the end of 2014, according to data from BrightScope.
Similarly, PNC Financial Services had about 11% of its plan assets in company stock as of the end of 2014, according to BrightScope.
Also as of that time, some examples of other companies with substantial plan assets in company stock included Charles Schwab (19%), Franklin Resources (7%), Zions Bancorporation Payshelter (28%), Aflac (27%), Progressive Corporation (27%) and Regions Financial Corporation (26%), according to BrightScope data.
Further, some firms, such as Raymond James, have pure ESOP plans, in addition to their 401(k)s. That company had $234 million in company stock in its ESOP plan at the end of 2014, according to BrightScope. The firm’s separate 401(k) plan had about $720 million at that time.
OCT 12, 2016
Wells Fargo & Co.'s legal troubles are mounting following revelations of the bank's recent cross-selling scandal last month.
A participant in the Wells Fargo 401(k) plan has sued the company over a “material drop” in its stock price following news of the scandal, characterized as a “criminal epidemic” that caused hundreds of millions of dollars in damages to the retirement plan, according to a court filing.
Approximately 34% of assets in the company 401(k), a massive $36 billion plan with more than 360,000 participants, are invested in Wells Fargo common stock, according to BrightScope Inc., a 401(k) ratings provider.
OCT 9, 2016
Brooks Herman, head of data and research at BrightScope Inc., said that of the 60,000 employer-sponsored plans managing more than $4 trillion, he sees alternative investment options making virtually no inroads.
'LESS THAN 1%'
“You might find an alternative strategy inside a sleeve of a target-date fund, but even counting REITs and commodities, it's less than 1%,” he said. “Alternatives are usually not even available to plan participants unless they have access through a brokerage account.”
“If you're going to see retirement plans add alternatives, it's going to happen with the jumbo plans first because they set the trends, and we're not seeing alternatives yet in the big plans,” Mr. Herman said. “It takes years for these kinds of changes to happen because these plan sponsors move at glacial speeds. At this point, you don't even see gold ETFs on plan menus, and you don't even see a lot of commodity products or smart beta strategies.”
From most perspectives, the bottleneck when it comes to alternative strategies starts with education, and within the education challenge reside the issues of higher fees, shorter track records and a growing fear of lawsuits tied to fiduciary duties.
OCT 5, 2016
Janus’s mutual fund assets have hovered around $100 billion since 2011, and the firm has seen about $3.7 billion in net outflows year-to-date as of the end of August, according to data from BrightScope.
OCT 4, 2016
Ten months after cutting ties with FolioDynamix, the outsourcer for wealth management firms he co-founded in 2007, Schumm’s new 401(k) robo-TAMP, Vestwell Inc., is drawing a bead on Fidelity Investments and The Vanguard Group in the defined contribution business.
Speaking broadly but alluding to Vestwell as probable Exhibit A, Mike Alfred, CEO of BrightScope, says not to put too much faith in venture capitalists of robo-401(k) startups.
“[These VCs are] fish out of water, putting money into something they don’t really understand. In the retirement space you have to sell the plan sponsor, deal with compliance. It’s a heavy sales environment.”
Alfred poses the question: How can they compete against the Vanguards of the industry? He answers: “They can’t. Robos don’t have scale. It’s the only way to compete against Vanguard.”
OCT 3, 2016
“It’s definitely a change of tone,” says Mike Alfred, CEO of BrightScope, pointing to the all-active manager’s history of distributing products exclusively through advisors.
American Funds’ decision to have its funds distributed outside of financial advisors likely has much to do with the DOL’s fiduciary rule, he says. Particularly, it could be difficult for some advisors to recommend IRA rollovers to their existing 401(k) clients who use American Funds products, if it would result in higher fees, Alfred notes. In those cases, an advisor might only recommend a rollover if the client switches to funds from a different provider, he says. “Some of their most loyal advisors in the past may not be there in the future," he says.
“It will be harder to justify higher expenses in a new IRA.”
Because of that dilemma facing both advisors and fund firms, product manufacturers “need to find new ways to do business directly with the consumer,” Alfred says.
And firms such as American Funds, which stand to benefit from their brand reputation, might want to “disentangle themselves somewhat from the advisor relationship,” he says.
SEP 27, 2016
How do you know if the fees are too high?
Schlichter: BrightScope is good for investors (to check fees). Employees of a company should be able to command institutional rates for most mutual funds. Typically a small employee could have a multimillion dollar plan – more than a $250 investor. A couple of hundred employees should be able to command lower fees.
SEP 26, 2016
Today there are signs that momentum could be shifting. U.S. equities, for one, are as frothy now as they were leading up to the 2007–09 bear market and the Great Depression in 1929. The S&P 500 trades at a price/earnings ratio of 27.3 based on 10 years of averaged profits, a 63% premium to historical averages. Although your long-term portfolio may not need a major overhaul, a few adjustments can keep you on the right track regardless of what happens in the market.
One area to consider is rebalancing within the stock portion of your portfolio. According to a joint study by BrightScope and the Investment Company Institute, which looked at 401(k) trends as of 2013, only 8% of these retirement accounts were invested in foreign equities—a figure that’s likely lower today, given the selloff in developed and emerging-market stocks overseas.
SEP 21, 2016
According to data from the Department of Labor aggregated by BrightScope, the plan included 31 investment options on its menu in 2014. At that time, the plan held $600 million in net assets, and the top three funds by plan assets were the Great-West Stable Value Fund, at 13% of plan assets, Dodge & Cox Stock, at 9%, and BlackRock Equity Index, at 8%.
SEP 21, 2016
According to employer data analyzed for The New York Times by BrightScope, a financial information company based in San Diego, in 2006, about 36,000 401(k) plans at companies with fewer than 250 employees were “new,” or started that calendar year.
Eight years later, slightly more than 34,000 401(k) plans were started by similar-size companies, said Brooks Herman, head of data and research for BrightScope, noting that there was a dip in new plans after the 2008 financial crisis. The company’s snapshot does not include individual or small-employer individual retirement accounts, so the actual numbers are probably higher.
SEP 19, 2016
BrightScope is setting out to make a continuously updated 401(k) database — one built with the plan documents provided by participants and advisors. The product would give brokers and RIAs information necessary to determine whether recommending a rollover would be in a client’s best interest.
The company plans to build the new database with plan documents supplied by participants to their advisors, who would ultimately submit them to BrightScope. Those documents would include fee disclosure statements and quarterly statements, which could also be submitted directly by plan sponsors. BrightScope plans to have individual plan information updated within the database at least quarterly.
SEP 15, 2016
BrightScope is currently developing a database of up-to-date plan information, which would be used by broker-dealers to determine whether recommending rollovers is actually in a client’s best interest, that firm says.
SEP 15, 2016
Today the NFL’s retirement plan is considered among the best in any industry. Miller, for one, calls the league benefits “amazing,” while defined contribution ratings provider BrightScope puts the NFL’s 401(k) provision at the top of its rankings. But the multi-tiered pension package football players receive today is not the same retirement plan that was available in Scott Hunter’s day.
SEP 12, 2016
There is nearly $22 billion in those accounts, representing 10% of assets in plans that offer managed accounts, according to Empower. About 1,500 of the company’s plans, about 5% of its total, use managed accounts as the qualified default investment alternative.
The idea of “dynamic” managed accounts as a QDIA seems promising, says BrightScope CEO Mike Alfred, in an e-mail response to questions.
SEP 7, 2016
A Wall Street Journal article earlier this year noted that, "According to Vanguard Group, investors in a plan that charged 0.25% a year could in theory amass 20% more money over a four-decade career than they could in one that charged 1.25%, all else being equal." You can look up ratings for many companies' 401(k) plans at www.brightscope.com, where it rates them on fees, among other things.