Comments on: Obfuscation of the day, John Hancock edition A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: y2kurtus Thu, 07 Apr 2011 15:15:08 +0000 A company which offeres a 401k plan to it’s employees owes those employees a fidicuary standard of care in the selection of investment options and the disclosure of the costs born by participants. This became a huge issue when the supreem court allowed participants to sue providers in class action law suits. rement/2008-02-20-401k-scotus_N.htm

The very shady industry standard TFF described is in my massively biased opnion still standard practice for annuity sales… here’s 20+ pages of fine print… sign here… yes I just made an 8% comission… BARF!

Like always there are probably some very honest and ethical agents out there… but in the world of annuities the ratio of bad apples to good apples has been unacceptablely high in my expeiernce.

By: TFF Thu, 07 Apr 2011 01:23:22 +0000 Maybe I am 15 years out of date, y2kurtus? All I know is that I was given a hard sell by somebody invited into my school, encouraged to sign a sheaf of papers without having had the chance to read them, and the damning numbers were NOT prominently displayed in the documents.

If that is no longer the industry standard, then I apologize for the slander. Yet I continue to read articles of people preying on senior citizens — so I’m skeptical.

By: y2kurtus Wed, 06 Apr 2011 21:47:33 +0000 Perhaps I am “way off base” because my bank is so far ahead of the curve that we are a golden role model for others to follow… but I doubt it.

Our ADP administered 401k plan website clearly discloses the exact expence ratio paid by participants for all of our options. I’m told that ADP is a top player in the 401k admin space and I’m sure everyone they serve has the same interface we do.

We have been advised by ADP and others that anything less than that full and straightforward disclosure is afoul of DOL guidelines. If you click on the link I included in my previous post and stroll around the DOL website you’ll find that clear and simple disclosure of fees born by participants is a big area of focus for the DOL.

By: TFF Tue, 05 Apr 2011 20:17:04 +0000 Yes, y2kurtus, you are way off base on this one…

Back in my ignorant youth, at my first job, I had a salesman try to sell me a 403b deferred compensation plan. Turned out it had annuity fees of 1.5% a year on top of management fees, for a total cost in the 2.5% to 3.0% range. Yet to figure this out, I had to piece together information from multiple paragraphs, spaced throughout a twelve-page agreement.

Had I signed on to that, and stayed in the plan (there were exit fees as well, though I couldn’t figure them out) I would have given away well over $100,000. Ouch!

Bury a disclosure in enough fine print and you effectively aren’t disclosing anything at all.

By: Strych09 Tue, 05 Apr 2011 18:58:06 +0000 y2kurtus, you’re missing the point. The plan sponsor can and does disclose all fees paid by the plan participants, but does so in a manner that is utterly opaque to even educated employees who are contributing their wages to the plan.

As such, the disclosure, while meeting the letter of the law/regulations, is useless to the end-user of the information, who wants to know what portion of their contributions, that is to say their hard-earned wages, is being siphoned off to support the bolivian marching powder habit of some Wall St. type.

By: Thorvald Tue, 05 Apr 2011 18:15:18 +0000 I’m sorry, but Alkali’s comment is nonsense.

Lawyers undoubtedly had a lot to do with John Hancock’s windy evasiveness, but even if I’m willing to believe that all that boilerplate is needed to avoid litigation, I’m still left with the fact that John Hancock won’t give you the number. You’ve got to make a phone call.

And there’s a simple control to be made here: I checked out a Vanguard fund — Explorer Value Fund, a non-indexed small cap value fund. It took me all of 30 seconds to find that the expense ratio was 0.56%, and that the industry average for similar funds was 1.48%.

So, is Vanguard simply being reckless? Do they hold down costs by refusing to employ counsel? Is John Hancock’s ratio vastly more difficult to calculate?

Or is it possible that they’re being evasive simply because they don’t want you to know the number?

By: y2kurtus Tue, 05 Apr 2011 14:55:05 +0000 “Will the CFPB have the power or the inclination to clean up the mess that is the 401(k) system? I doubt it. But if it doesn’t, no one will.”

Any plan sponsor who dosen’t clearly disclose all fees paid by plan participants can expect to hear from the department of labor. I’m on the work group that manages our 401k and we get updates from our service providers all the time to make sure our disclosure is compliant with ERISA regs. k_employee.html

By: TFF Tue, 05 Apr 2011 11:28:21 +0000 dWj, good point on diversification as risk-management, but you still need to know all the stocks in your portfolio well enough to know that they are sound companies. Diversifying into bad companies is always a bad idea.

Despite my polemy, we have roughly half our stock investments in a broadly diversified low-cost fund (that essentially acts as a composite domestic/international index). We might not have chosen that, but it is simply the way the system works. The rest of our stock investments are divided ~15 different ways, with no single security comprising more than 5% of total assets.

For me, working alone, that seems a reasonable balance between diversification and confusion. Had I a larger allocation to JNJ this year, I would have been sorely unhappy with the results!

By: AndyRachleff Tue, 05 Apr 2011 04:43:52 +0000 Wealthfront recently published with the help of Lipper Inc. (the leading mutual fund market research form), a detailed analysis of all the fees an investor pays in an average actively managed mutual fund. When you include all the components (including the hard to find ones) and use an arithmetic average (rather than an asset weighted average which makes the fees look a lot lower), the total average actively managed mutual fund fees is 3.01% of assets under management. Please see y-managed-mutual-fund-expenses/ for details

By: dWj Tue, 05 Apr 2011 02:13:13 +0000 I agree with alkali that lawyers are probably at least partly involved in obfuscating official documents.

Let me push back a bit against a point from TFF that is often made by Felix about not understanding large aggregations; perhaps 3 or 4 years ago (and to a lesser extent today) people have used diversification as an excuse for not understanding investments well enough, but there is truth to both 1) you can never understand an investment perfectly, but there’s a lot of ground between there and understanding only that its ticker symbol is the same as the initials of your first crush, and 2) that understanding each $1B of possible fluctuation in future earnings of each of several companies is less valuable the more diversified you are. Unless correlations are literally 1, you gain something from diversification in terms of risk management, and the optimal granularity of information-seeking presumably drops.