I must admit I still chuckle when I think about Jeff Masin, a one-man-band busking in New York City. Jeff sings and accompanies himself on the guitar while, via a series of cleverly-placed bungee cords, he simultaneously operates drums, a washboard, cymbals, and somehow, a kazoo! You have to see it to believe it.
While Jeff seems to be successful (as measured by the amount of money landing in his open guitar case and relative to others busking in the area), the one-man-band idea does not fare well in the professional world, I think. I was reading an ad today for an attorney in solo practice who claims to be equally versed at civil litigation, criminal defense, family law, immigration, business bankruptcies, and injury malpractice. From what little I studied about law in university, I feel that each of those areas could be a separate practice in and of itself. Do you really want your attorney playing the kazoo during your divorce hearing?
This then brings me around to my arena, retirement plans. I was reviewing the investment line-up for a prospective client today. The client has a $3.5 million dollar plan with 401k provider, XYZ. Surprise, surprise. Every investment in the plan was from the XYZ 401k provider. Could it be that XYZ 401k provider offers the best investments in every single area of investing and that is why they are exclusively offering their own cooking? In other words, are they able to sing Adele's greatest hits while accompanying themselves on 7 different instruments?
In cases like this, I tell my prospective client to lean on the Department of Labor's (DOL) stance that all investments need to be evaluated by a defendable and repeatable process. You do not have to have the best performing funds in your 401k as "best performing" is subject to change every day. You do not have to have the lowest-fee funds either. You simply need a defendable and repeatable process by which you evaluate, retain, and replace investments.
In this case, I will chat with the prospective client as to what process was used to select the plan investments. When were they last reviewed? How do those investments compare to the written Investment Policy Statement? When was the Investment Policy Statement last reviewed and updated? How were the Prudent Person rule and the DOL's Duty of Loyalty adhered to? I suspect I may hear answers similar to "XYZ chose the funds for us", "The funds have not been reviewed in sometime", and "Investment Policy Statement? What Investment Policy Statement?".
If that is the case, all is not lost. The important thing is to create a defendable and repeatable investment process and implement it immediately. The Investment Policy Statement needs to be written and adhered to. Communicate to all plan participants including former participants with a balance as to what is going on, what investment changes are coming, and why that is happening.
The prospective client may also also ask themselves, "Why did XYZ 401k provider recommend its own funds exclusively?". Might this be a conflict of interest? That is something the prospective client will need to research. And yes, they can hire me (with payments directed to my broker-dealer!!) to look into this as well. My guess is that I may not find a successful one-man-band. Granted, I have only been in the industry 34 years. There is a first time for anything. I mean, when I walked through the New York City subway station, did I really expect to see a man belting out Adele while playing seven instruments at the same time? Color me surprised.