Budverfaillie's Weblog

Benefits of Upgrading Your Existing 401k plan rather than replacing it

budverfaillie — Mon, 16 Jun 2008 22:26:20 +0000

The thought of replacing your existing 401k plan with a new plan provider may cause some executives to wonder if it’s worth the potential disruption to management. With the passage of the New Pension Protection Act in 2006, there is a new concern of plan trustees that their company retirement plan may need a fresh look. The New Act provides sweeping legislation, putting more responsibilities on the shoulders of Plan Trustees, their consultants and Plan Providers.
An increasing trend by Plan Trustees is to consider an upgrade of their existing 401k plan rather than replace it. The primary benefits to an upgrade rather than a replacement is that you: have minimal disruption to management, no additional cost, reduced trustee risk, and you can become fully compliant with the New Pension Protection Act.
The Center For Fiduciary Studies (FI360.com) are the Industry Experts in the area of Fiduciary Responsibility. They state that all plans should conduct a fiduciary assessment every two to three years to identify areas of weakness. In light of the New Pension Protection Act, all plans should conduct an assessment to see what areas are out of compliance. The Center For Fiduciary Studies offers a self-examination, which consists of 16 questions. If your firm has these plan deficiencies, this is a strong indication that your existing advisor is not well trained in the area of fiduciary responsibility.
There are consulting firms who specialize in the area of “Fiduciary Prudence.” These firms will conduct a preliminary onsite examination and provide the recommendations necessary to correct the deficiencies. Some will not charge for this service because they realize that if your plan has these deficiencies, you will need to hire a firm like them. Examples of the most common deficiencies are the lack of an effective Investment Policy Statement, not knowing of the hidden plan fees (i.e. revenue sharing), poor performance monitoring and limited understanding of plan trustee responsibilities.
Many executives expect that their plan administration firm will guide them to take all the appropriate actions. The majority of plan administration firms do a good job in the area of reporting and testing, but believe it’s the advisors responsibility to educate the trustees in their fiduciary responsibilities.
When looking for firms to help you upgrade your plan, you should consider firms who can demonstrate they have fully integrated all the Best Practice Standards established by Financial Service Standards (FSS). FSS was the first firm to establish Best Practice Standards for retirement planning consulting firms based on the fiduciary principles established by the Center For Fiduciary Studies. Those graduates have earned the professional designations of Accredited Investment Fiduciary Analyst (AIFA) and Professional Plan Consultant (PPC).

To receive your free copy of the fiduciary self-examination test and the Executive Summary detailing the corrective actions necessary, contact Bud Verfaillie, AIFA,PPC,CFP

How to Select a Company Retirement Plan Consultant

budverfaillie — Mon, 16 Jun 2008 22:01:24 +0000

ERISA states that plan trustees must periodically access the competitiveness of the current plan. Opening your plan up to review every 3-4 years is an excellent way to demonstrate that you are fulfilling that responsibility. You should consider at least three consulting firms. Competitors will be happy to pinpoint plan deficiencies and what they would do to correct them. Make certain you retain the proposals of all firms interviewed, your notes and summary of why you chose the winning company.
ERISA requires that company retirement plan fiduciaries manage their plans prudently and in the best interest of the participants. Findings in a May 2005 report by the SEC have raised serious questions concerning whether pension consultants are fully disclosing potential conflicts of interest. As a result, the DOL published 10 Questions You Must Ask Your Advisor. These 10 questions require the consultant to answer important issues of disclosure and shared fiduciary responsibility. These questions should be use when interviewing potential or current consultants.
There are many facets of retirement plan consulting that are not typically learned through general investment management or financial planning experience. Having a consultant with generic investment management experience could bring unnecessary liability exposure to the trustees. The industry experts from the Center for Fiduciary Studies and Foundation of Fiduciary Studies recommend experienced consultants who have earned the AIFA (Accredited Investment Fiduciary Analyst) and PPC (Professional Plan Consultant) professional designations.
These are the first and only designations that illustrate knowledge and competence in the area of retirement plan consulting. These designations require consultants to structure their retirement program around 22 fiduciary principles, which have become the global standard of excellence in retirement consulting.
Consultants will tell you all the great things they are going to do for your plan. Why not sample what they are selling? Ask how the consultant will identify and correct all plan deficiencies. Ask for proof that their retirement program covers all 22 global fiduciary principles. Carefully look through their sample compliance and procedures manual. This manual will be central in organizing your plan and preparing you for an audit. You should be able to see a copy of their Investment Policy Statement, Investment Committee by-laws, quarterly performance reports and Investment Committee summaries. Ask how they will access the effectiveness of their education program.
The DOL states that your consultant should fully disclose all sources of compensation including revenue sharing arrangements. Revenue sharing is a practice where Mutual Fund companies pay a portion of the account value to the Plan Administration Firm for using that fund. It is up to the Plan Administration Firm as to how they will use those revenues. Ask the consultant to put into writing what the fund revenue sharing is and how it is distributed.
Bud Verfaillie
1-800-938-0989
www.victoryasset.com

Who’s Managing Your Company Retirement Plan

budverfaillie — Mon, 16 Jun 2008 21:11:44 +0000

Who’s Managing Your Company Retirement Plan
How effective are they?

Federal Law (ERISA) mandates that the employer, and retirement plan trustees are ultimately responsible for overseeing the process of your retirement plan. The Department of Labor (DOL) states that Trustees should have the proper tools to effectively manage the plan.
The preparation and maintenance of the Investment Policy Statement (IPS) is one of the most critical functions of the fiduciary. The IPS should be viewed as the business plan and the essential management tool for directing and communicating the activities of the plan. A Fiduciary Assessment shows how well you are fulfilling your responsibilities to improve plan performance. An Executive Update provides an analysis of how portfolio managers are performing based on the nine due-diligence criteria established by the Foundation for Fiduciary Studies.
An Annual Review includes discussing last year’s plan objectives; plan costs, recent legislative changes, IPS, plan document updates and trustee/employee education. The DOL states that trustees can demonstrate that they have carried out their responsibilities properly by documenting their processes. A Compliance Manual serves this purpose as a collection of all the documents, procedures and processes necessary to effectively manage your retirement plan.
Investment counseling is not part of the Human Resource Manager’s role and could expose them to unnecessary liability. Your HR manager should be able to provide answers to basic employee questions, address plan administration issues, and provide basic support, updates and reports to plan trustees.
The Executive Assistant should refer all plan questions and issues to Plan Trustees, HR or the Investment Consultant; otherwise they may take on unnecessary risk and/or liability.
The Investment Consultant is the coordinator and primary support for the plan trustees and HR. The DOL states the Investment Consultant should have a shared fiduciary responsibility and acknowledge that in writing. The Investment Consultant should also fully disclose all plan costs including compensation to the plan no less than annually. The Investment Consultant: conducts a fiduciary assessment to identify deficiencies and corrective actions; coordinates the development of the Compliance Manual and IPS; provides a quarterly Executive Update; provides education for trustees, HR and employees; and conducts a comprehensive plan review annually.
The Foundation for Fiduciary Studies and Financial Service Standards state that retirement plans should use experienced Investment Consultants with specialized designations such as AIF (Accredited Investment Fiduciary) and PPC (Professional Plan Consultant).

Bud Verfaillie
1-800-938-0989
www.victoryasset.com

How Many Hidden Time Bombs are in Your Company’s Retirement Plan?

budverfaillie — Mon, 16 Jun 2008 18:57:42 +0000

Hidden time bombs are major threats in a company’s retirement plan that could affect the integrity and reputation of the management team. In 2006, the Department of Labor (DOL) will be auditing about 1000 plans in the tri-state area. The audits are extremely disruptive to business.

Many executives are lulled into a false sense of security because they believe having their plan with a large insurance company or brokerage firm will protect them. They believe that having their retirement plan with a large institutions will protect them as the institution is protecting itself.

This is a myth.The DOL states that in order to reduce the conflicts of interest and help balance the liability exposure, investment consultants should acknowledge their responsibility to their clients and put a high standard process in place. The Insurance and Brokerage Industries have been running from that responsibility and have structured their retirement programs around protecting themselves.

This alienates the employer who assumes more of the liability risk. The Department of Labor has a list of 10 questions they say you must ask your advisor. These questions are focused on specific areas that should be important to all plan trustees.

For a high quality process, the Investment Policy Statement (IPS) is a good place to start. It describes what types of processes are in place in managing the retirement plan. Unfortunately, we find that over 90% of the companies with plan assets less than $50 million do not have an IPS or they have one that is grossly insufficient. Having an acceptable IPS is only a start. You must be able to document your adherence to the processes outlined. It has been said that the only thing worse than not having an IPS is having one that you are not adhering to.

A high quality process also means periodically seeking competitive bids. Using independent custodians like Charles Schwab Institutional and independent plan administrators provides a good environment to stay competitive. In terms of service, most commission-based plans pay as much as 50% less the second year motivating the commission based advisor to seek new plans at the cost of servicing existing ones. Level fee-based compensation makes existing accounts more profitable than new accounts, thereby motivating investment advisors to service their existing plans first. Fee-based arrangements provide the motivation to grow the assets and service the client.

Bud Verfaillie
1-800-938-0989
www.victoryasset.com

Resurrecting America(TM)

budverfaillie — Tue, 01 Apr 2008 00:23:09 +0000

Listen to online audio productions on “Resurrecting America(TM).”

Victory Asset Management Company

budverfaillie — Mon, 24 Mar 2008 19:55:24 +0000

The National Society of American Business Owners publishers of “Wealth Creation Magazine” (TM) features Bud Verfaillie and Victory Asset Management Company.

Service Excellence in 401K Plans
by Bud Verfaillie

The test for greatness will vary based on what’s being graded. Rating the quality of an Investment Advisory Firm can be quite subjective and may not provide enough practical insight.

The financial services industry has been changing dramatically since the early 90′s with the increasing trend of offering commission free investing. Prior to November of 2007, anyone could call themselves an Investment Advisor without regard to experience or objectivity. With the Merrill Lynch Rule being vacated, the only professionals able to call themselves “Investment Advisors” are independent advisors who will acknowledge they have a shared fiduciary responsibility with their clients. This also includes providing full disclosure on how they are compensated.

Let’s assume you are able to identify those independent advisors. How do you really determine the quality of one firm over another? Making sure they have the appropriate designations such as an AIFA (Accredited Investment Fiduciary Analyst), PPC (Professional Plan Consultant) and CFP (Certified Financial Planner) is an important first step. Referrals are of little use, because the advisory firm is only going to provide you great references. How is a client or the trustee of a 401k plan going to conduct a complete review of several firms trying to locate that diamond in the rough?

What if you could have an objective organization that knew all the best questions to ask the firm for you? What if the interviewing firm would gauge their answers with the Best Practice Standards in the industry? What if they didn’t take their answers at face value, but required the advisory firm to substantiate in writing and document their answers? What if they sent an auditor to review the firm’s compliance procedures and actually verify their claims by sampling their current client files? What if at the end of their process, the independent auditing firm could certify that the firm has demonstrated adherence to the industry’s best fiduciary practices indicating the advisory firm’s interests are aligned with those of investors?

This certification process is a reality as of 2007. The certifying firm is The Centre For Fiduciary Excellence (CEFEX). CEFEX is an independent certification organization. They work closely with industry experts to provide comprehensive assessment programs to improve the fiduciary practices of Investment Advisors, Stewards and Managers.

As President and CEO of Victory Asset Management Co. Inc., Bud Verfaillie was always looking for a better way to increase the value to customers and develop consistent quality control measures. This was even more important when Verfaillie used his 30 years of asset management experience to become a national expert in the area of 401k plans and employee rollovers. Victory Asset Management Co. received their CEFEX certification in September 2007 making them one of the first Investment Advisors in the US to complete the certification process.

For further information, contact them at 800-938-0989 x.106, vam@victoryasset.com or by visiting them at www.victoryasset.com