Be aware of conflicts of interest when planning your retirement

A recent Wall Street Journal article from Jason Zweig, “Who Is Training Your Retirement Navigator,” points out a startling example of the conflicts of interest that exist in the world of retirement planning. Employees are particular targets at retirement age because of the potential money to be made on retirement account rollovers.

As Zweig astutely points out, “Everyone has a vested interest. Brokerages, mutual-fund managers and insurance companies all earn fees on the investments they promote to retirees. Somehow, they always seem to make their own offerings sound the best.”

Zweig’s article includes an outrageous example of a Maserati being offered to advisers who sold $7.5 million in high-cost annuities in 2014. But there are more subtle conflicts at work as well. Some of the nation’s largest retirement plan managers aggressively target current 401(k) account holders on their books at retirement in an effort to convince them to roll over accounts from low-cost 401(k) share classes to IRAs with investments that charge much higher fees. Employees are often not made aware of the benefits of leaving their savings in their plans and are almost never briefed on how the company offering the “advice” stands to benefit.

If you are getting close to retirement or have changed jobs and are considering a rollover, here are a few questions you need to ask any potential adviser:

  1. Are you a fiduciary? Fiduciaries are individuals who must place their customers’ interests ahead of their own. They must disclose how they are paid and any conflicts of interest that might exist in the products and services they recommend. Fiduciaries may work for companies that only allow them to sell you their proprietary products, but as fiduciaries they are required to disclose that information.
  2. What are the benefits of not rolling my assets out of my plan? Terminated (no longer employed by the plan sponsor) plan participants retain many rights and benefits offered by their former employer’s plan. Of course, they can no longer contribute, or take a loan, but they still benefit from the strongest legal protection against repatriation of these assets (someone claiming them in a bankruptcy proceeding) or the ability to avoid required minimum distributions if they are over 70 and still working.
  3. Will my asset management fees increase or decrease if roll my assets into an IRA? 401(k) plans are often large institutional customers commanding deeply discounted asset management fees. You should know what you are currently paying and what you would be paying if you rolled your money over into an IRA. Any adviser who is a fiduciary should provide you this information without your having to ask. If you have to ask, get it in writing.
  4. How are you being paid and how much? Fees are collected in a variety of ways and there are a lot of questions to ask, including: Do you charge an initial planning fee? Are you paid a commission or will you collect a flat fee on my investments? If so, how much will you receive on my account?



Also ask about the costs for any mutual funds under consideration that will also charge both a management fee and expenses. Ask your adviser if he or she makes money from selling certain products versus others. The goal here is to figure out your adviser’s motivation and the total amount you’ll be paying in fees.

One final tip: Ask all of these questions of potential advisers via email and request that they respond in kind. That way you will have their answers in writing.

Mike Francis is president and chief investment officer at Francis Investment Counsel. He has been a featured columnist for the Milwaukee Journal Sentinel and is a frequent speaker on retirement plan investment issues.

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