The Prudent Fiduciary

Scott Pritchard | Principal

A look at the major issues that are shaping fiduciary best practices today.

For Want of a Nail

May 2013

“The Retirement Gamble”.

That’s how PBS’s Frontline documentary of April 24th described the current state of retirement in the US. The piece went on to explore how average Americans are struggling to save enough to fund a secure retirement.

According to Frontline, the primary culprits are…
    • Wall Street’s greed in charging excessive, hidden fees.
    • The inability of Wall Street’s stock pickers and market timers to out-perform        passive investments.
    • The lack of a uniform fiduciary standard that would require all “advisors” to        put the client’s interests ahead of their own.

There has since been a huge response in numerous forums praising Frontline for revealing these troubling truths, followed by calls for drastic changes in the retirement landscape.

But wait, haven’t we heard this story before? Yes, we have. On May 16, 2006, Frontline ran an amazingly similar story entitled “Can You Afford to Retire?” (archived on Some of the same industry experts even appear in both documentaries. The same problems were highlighted and there were the same subsequent calls for change.

And what changed after that? Clearly, not much.
While the culprits of Wall Street certainly deserve some blame, they are only doing what our free-enterprise system allows them to do. As long as clients keep buying it, they’ll keep selling it.

I think we all have to recognize another culprit: Inertia.

Inertia on the part of plan sponsors who recognize the problems, but don’t seek out the solution that is readily available. Inertia on the part of participants who just accept what is offered by their employer and don’t press for a better 401(k) plan when help is out there.

At a recent conference I attended, a panel of plan sponsors was asked how much time they spend on their 401(k) plans. They were each very frank: “Other issues are just bigger than the 401(k) plan…as long as its low-maintenance then I’m happy.”

If all we want from a 401(k) plan is that it be “low-maintenance”, is it any wonder that we have problems with the retirement system?

These problems will persist as long as plan sponsors are too busy to make the changes that are necessary. As long as they place their blind trust in service providers who have no fiduciary duty to act in participants’ best interests. As long as lawmakers are unduly influenced by the Wall Street lobby to avert the establishment of a uniform fiduciary standard.

Hard-working Americans deserve better. And the solution is simple.

All plan sponsors or participants have to do is take the small step to seek out the involvement of a fee-only, independent Registered Investment Advisor (RIA) who is legally bound by a fiduciary standard of care to act solely in the best interests of participants. These advisors can guide participants to prudently diversified portfolios that are constructed using low-cost, passive funds. And they can provide reasonable fiduciary cover to the plan sponsor at the same time.

Everyone wins. It’s not that hard.

As the old proverb below reminds us, small things can have huge consequences…

For Want of a Nail
For want of a nail the shoe was lost;
For want of a shoe the horse was lost;
For want of a horse the battle was lost;
For failure of the battle the kingdom was lost –
All for the want of a horse-shoe nail.

If plan sponsors and participants will just take the small step to seek out a fiduciary advisor who can truly make a difference with their retirement plan, we may find that the battle for retirement security can still be won. The future retirement of a whole generation of workers may depend on it.

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