Smart Investor Recognized for Fiduciary Excellence

CEFEX Certifies Rocklin-Based Firm’s Commitment to Providing Fiduciary Advice

ROCKLIN, CA – October 29, 2013 – CEFEX, the Centre for Fiduciary Excellence, LLC, has certified Smart Investor, a Registered Investment Advisor headquartered in Rocklin, California, to the standard described in the handbook “Prudent Practices for Investment Advisors.” Smart Investor joins the elite group of investment advisors who have successfully completed the independent certification process.

The CEFEX standard describes how an investment advisor assumes the responsibility for managing a client’s overall investment management process, which includes the selection, monitoring and de-selection of investment managers, as well as developing processes to implement investment strategies and fiduciary practices on an ongoing basis.

“The fiduciary standard is the gold standard for providing investment advice,” said Allan Henriques, president and CEO of Smart Investor. “Being certified by CEFEX for fiduciary excellence is a sign of our ongoing commitment to always working in the best interests of our clients, whether they are individuals or retirement plans,  and providing them with objective, financial guidance.”

“Through CEFEX’s independent assessment, the certification provides assurance to investors, both institutional and individual, that Smart Investor has demonstrated adherence to the industry’s best fiduciary practices,” said Carlos Panksep, general manager of the Centre for Fiduciary Excellence. “This indicates that Smart Investor’s interests are aligned with those of investors.”

Smart Investor has been certified for provision of investment advisory services for: ERISA defined benefit and defined contribution plans, including discretionary advisory services within the ERISA 3(38) and Fiduciary Adviser (PPA) safe harbors; not-for-profit retirement plans including 403(b) and 457 plans; private clients including high-net-worth individuals, trusts and businesses foundations; endowments; and charitable remainder trusts. The annual certification process involves a detailed assessment of operational data and procedures, followed by on-site interviews with key personnel. Smart Investor is registered at www.cefex.org, where its certificate can also be viewed.

The standard is substantiated by legislation, case law and regulatory opinion letters from the Employee Retirement Income Security Act (ERISA), the Investment Advisor’s Act of 1940, Uniform Prudent Investor Act (UPIA), Uniform Prudent Management of Institutional Funds Act (UPMIFA) and the Uniform Management of Public Employee Retirement Systems Act (MPERS) in the U.S.

A full copy of the standard can be downloaded from CEFEX at www.cefex.org and a summary can be viewed by clicking on Smart Investor’s online CEFEX certificate.

About Smart Investor
Smart Investor is a unique wealth management firm based in Rocklin, California. The firm is an independent, fee-based registered investment advisor serving entrepreneurs, small business owners, and retirement plan sponsors and participants. Learn more at www.smart-investor.cc.

Press Contact:
Allan Henriques
President and CEO
5800 Stanford Ranch Road, Building 800
Rocklin, CA 95765
916-435-2100
allan@smart-investor.cc

Retirement Plan Sponsors’ 401(k) Perceptions vs. Reality

Most plan sponsors don’t feel the urgency of fulfilling their fiduciary responsibility to their defined contribution plans. There are three main reasons these business owners stick with their current plans, even if the plan has flaws that cost their employees. However, these reasons rest on mistaken assumptions.

1. Unaware of fiduciary status. These plan sponsors say, “What’s a fiduciary? Who? Me?” Sometimes the fiduciaries’ identities should be obvious because they’re named in plan documents. Sometimes, identifying fiduciaries requires familiarity with the term’s definition. You are a fiduciary if you exercise control over the plan, provide advice to the plan or its participants, or select or supervise other plan fiduciaries. This broad definition embraces many employees at the plan sponsor who may never have heard the word “fiduciary.”

2. Believe theyve offloaded their responsibilities. Some brokers and service providers parade under the misleading title of “co-fiduciary.” They may say, “We recommend these great funds,” giving the impression that they’re fiduciaries, even when they’re not. However, in reality, the company sponsoring the retirement plan (generally identified in the plan documents as the “named fiduciary”)—not the co-fiduciaries—still bears full responsibility and liability when it works with a co-fiduciary. A plan sponsor can delegate fiduciary responsibility, but only to a fully qualified fiduciary.

3. Too busy to bother. Sometimes plan sponsors say, “This demands extra, time-consuming work. It won’t grow my company. Why should I bother?” This attitude is reinforced by the failure of many companies to comply with their fiduciary responsibility. However, this is an increasingly risky path. Lawsuits and employee complaints are likely to rise in 2012 as the Department of Labor requires greater disclosure of plans’ effectiveness for employees in terms of costs and investment returns.

The Good News: An Independent, Fee-Based Financial Advisor Can Help

An independent financial advisor who’s knowledgeable about fiduciary issues can shift much of the burden―in both time and legal liability―from the plan sponsor.

Sacramento-Stockton-Roseville 401(k) plan sponsors, Smart Investor would like to ease your regulatory and retirement plan burden. Contact us at 916-435-2100.

EBRI Study: Retirement Readiness Rises with Age, But Not By Enough

Sacramento-area 401(k) plan participants, in Smart Investor’s experience, have a lot in common with average Americans. At least that’s true in terms of average Americans as portrayed by the Employee Benefit Research Institute’s (EBRI) 2012 Retirement Confidence Survey fact sheet, “Age Comparisons Among Workers.”

“The closer people are to retirement, the more likely they are to take steps to insure they have a secure retirement,” writes EBRI. Statistics show that the percentage of workers who have saved for retirement rises with each decade of age, except that the rates are roughly comparable for ages 35–44 and 45–55.

However, Smart Investor is concerned to see that almost half (48%) of all workers have saved less than $10,000. Of course, it’s not surprising that this statistic rises—to 57%—for ages 25–34.

More than 70% of Americans older than 55 have saved less than $250,000, according to the EBRI report. Of these, 31% have saved less than $10,000. That’s a scary number.

Retirement Savings Among Americans Age 55 or Older

These numbers are a good reminder of why your 401(k) plan is so important for your employees’ retirement security.

If you have questions about boosting your employees’ retirement readiness or any aspect of 401(k) plan investing, Smart Investor would be happy to help you.

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA? Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.

EBRI Study: Retirement Readiness Rises with Age, But Not By Enough

Sacramento-area 401(k) plan participants, in Smart Investor’s experience, have a lot in common with average Americans. At least that’s true in terms of average Americans as portrayed by the Employee Benefit Research Institute’s (EBRI) 2012 Retirement Confidence Survey fact sheet, “Age Comparisons Among Workers.”

“The closer people are to retirement, the more likely they are to take steps to insure they have a secure retirement,” writes EBRI. Statistics show that the percentage of workers who have saved for retirement rises with each decade of age, except that the rates are roughly comparable for ages 35–44 and 45–55.

However, Smart Investor is concerned to see that almost half (48%) of all workers have saved less than $10,000. Of course, it’s not surprising that this statistic rises—to 57%—for ages 25–34.

More than 70% of Americans older than 55 have saved less than $250,000, according to the EBRI report. Of these, 31% have saved less than $10,000. That’s a scary number.

Retirement Savings Among Americans Age 55 or Older

These numbers are a good reminder of why your 401(k) plan is so important for your employees’ retirement security.

If you have questions about boosting your employees’ retirement readiness or any aspect of 401(k) plan investing, Smart Investor would be happy to help you.

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA? Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.

Auto-Enrollment’s Little-Known Benefit: Better Participation by Blacks and Hispanics

Plan sponsors and participants both benefit when sponsors automate features of their 401(k) plans. As you might expect, auto-enrollment boosts employee participation. This is particularly effective with black and Hispanic employees, according to a study conducted by the Vanguard Group.

401(k) Auto-Enrollment: Participation May Rise by 30%

Who wouldn’t like to boost plan enrollment by 30%?

This kind of gain is possible, according to a key finding from “Diversity and defined contribution plans: The role of automatic plan features.

“Participation rates under automatic enrollment rise from 57% to 94% for blacks and from 67% to 95% for Hispanics, eliminating most group differences.”

“Group differences” refers to research showing lower savings rates by blacks and Hispanics when compared with whites and Asians. It’s not clear why this gap exists. It may be due to factors other than race and ethnicity, such as income and education, according to research cited by Vanguard.

It’s hard to say whether all plans could achieve such big gains for their black and Hispanic employees. Vanguard’s research focused on seven large, feature-rich defined contribution plans. However, auto-enrollment seems beneficial across the board. Participation by whites and Asians also rose in the plans studied by Vanguard.

One Worry: Lower Deferral Rates

There’s one potential drawback to auto-enrollment. Participants tend to stick with the default rate of salary deferral.

“The average contribution rate drops to 4.4% for participants who were automatically enrolled into their plans, compared with 6% for those voluntarily enrolling. Prior research has shown that participants tend to remain at the default deferral rate recommended by the plan sponsor, and most sponsors set low deferral rates,” according to the Vanguard report. Plan sponsors should consider setting the initial deferral rate higher or automatically raising deferral rates to ease employees up to higher rate of savings.

Deferral rates are important to plan participants saving enough money to retire comfortably. “Higher deferral rates made more of a difference to 401(k) plans’ ending wealth than investment performance and even asset allocation,” as we said in “Deferral Rates Give Biggest Boost to Employee Retirement.

If you have questions about auto-enrollment or any aspect of 401(k) plan investing, Smart Investor would be happy to help you.

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA. Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.

California Lags Much of the U.S. in 401(k) Plans for Small Employers

Californians lead the nation in many desirable statistics. But we’re not doing such a hot job of setting up 401(k) or other retirement savings plans at small employers. More than 20 states had higher rates of plan sponsorship than California in 2009, according to a U.S. Government Accountability Office (GAO) analysis in Private Pensions: Better Agency Coordination Could Help Small Employers Address Challenges to Plan Sponsorship, (March 2012).

California vs. the Nation

California’s small employers fell into the next-to-lowest level of five levels of retirement savings plan sponsorship across the U.S. Only 13% of our state’s small employers offered plans. Small employers were defined as companies with 100 or fewer employees.

California fell below the national small employer average of 13.8%. More than 20 states did better than California, as you can see in this GAO report’s map below showing “Small Employer Plan Sponsorship by State in 2009.” In particular, Northeastern and Midwestern states did much better than us. The report didn’t speculate on reasons for this.

Smart Investor’s Take on California’s Small-Business Plan Lag

Smart Investor thinks there’s a silver lining to California’s 13% rate because it reflects our state’s creativity in generating new business ideas. We have a relatively high rate of start-up businesses. In the early years, most of a startup’s earnings get plowed back into the business to help it grow.

Also, until the recent advent of multiple-employer retirement plans, which combine many small company retirement plans so they can benefit from economies of scale, the costs for start-up or very small retirement plans were very high.

Small Employers Fear Risks, Choices, Time Commitment

The GAO found that some small employers shun retirement plans because of their complexities, risks, and the time required to sort through all of the options.

If you share their worries, Smart Investor would be happy to help you.

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA. Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.

Retirement Plan Calculations Can Boost Savings and Retirement Comfort

Saving is essential for your plan participants’ comfortable retirement. But how can you get them to boost their savings to reach their retirement goals? Smart Investor suggests you encourage them to calculate their retirement needs. Individuals who perform calculations tend to aim for higher savings, according to “The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings,” Issue Brief (March 2012) published by the Employee Benefit Research Institute (EBRI).

Retirement Savings: Off-the-cuff Estimates vs. Systematic Calculations

Many individuals don’t take a systematic approach to figuring how much they’ll need for retirement. In fact, 42% of workers guessed at the numbers, according to EBRI research. EBRI figures this is why so many workers underestimate their retirement needs.

In contrast, workers who’ve run the numbers have higher savings goals. For example, according to EBRI, “Twenty-two percent of workers who have done a calculation, compared with 9 percent of those who have not, estimate they need to accumulate at least $1 million for retirement.”This is a significant difference.

Encourage your employees to calculate their retirement needs. You can do this by reminding them of the online retirement calculators available at no cost as part of your 401(k) plan.

If your plan doesn’t offer a retirement calculator, perhaps it’s time to reconsider your providers. Meanwhile, you can point employees to free calculators available to the general public. One example is T. Rowe Price’s Retirement Income Calculator.

What About Your Retirement?

If you’re too busy to calculate your retirement income needs, you’re not alone. That’s why Smart Investor offers retirement planning to individuals in addition to advising corporate defined contribution plans.

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA? Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.

Fiduciary Advisors can Save Money for Plan Sponsors and Participants

Retirement plan sponsors often worrying that an independent fiduciary’s services will be expensive. This is true especially if they’re used to dealing with brokers, where the costs to participants were hidden. In fact, there’s often no cost to the company for hiring an independent fiduciary.

401(k) Plan Pays Advisor’s Fee if Conditions Are Met

Two fiduciary duties are key to how an independent fiduciary gets paid. The Department of Labor says fiduciaries’ responsibilities include “Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them.” This is the Duty of Loyalty, also known as the Exclusive Benefit Rule. It ties in with the fiduciary duty to pay only plan expenses that are reasonable relative to services provided.

The 401(k) plan rather than the plan sponsor can pay the independent fiduciary if certain conditions are met. The sponsor must document that services and expenses are reasonable. Plan sponsors must meet high standards because plan assets are held in trust for the benefit of the participants and their beneficiaries. If expenses are paid from plan assets, the fiduciary responsibility to have only reasonable services and reasonable expenses applies. On the other hand, if the plan sponsor pays all expenses itself, the expenses can be as unreasonable as the plan sponsor wishes because the money is coming out of the sponsor’s pockets.

Savvy Retirement Plan Advisors Often Cut Expenses−and Risk

In Smart Investor’s experience, an independent fiduciary can often cut the expenses of 401(k) plans formerly managed by brokers. By eliminating hidden costs, such as revenue-sharing between investment management companies and brokers, the plan’s total expenses may fall, even after paying the independent fiduciary’s fee.

Another benefit is that a newly hired independent fiduciary may find less risky—as well as less expensive—products for use in the plan.

The net result? Plan sponsors save time at little or no cost to their companies, while also reducing risks from litigation. Plan participants benefit from rigorous analysis and management of their investment options that may increase their odds of a successful retirement.

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA? Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.

Key Questions for Your Retirement Plan Provider, Part Three: Key Personnel’s Continuity

Retirement plan sponsors, have you ever developed a relationship with a business provider only to have that person drop out of sight? If so, then you know how painful it can be. To minimize these unpleasant surprises, you should ask about key personnel’s turnover and back-up plans when you’re evaluating potential 401(k), 403(b), or 457 plan providers.

Retirement Plan Provider’s Key Personnel Plans

Start by asking your key contact, “How long do you personally plan to be in this business with this company?” Don’t simply assume the registered investment advisor or other professional with whom you develop rapport will always be there. Some firms experience a steady flow of staff departures and arrivals. Ask about that overall turnover rate.

Unexpected things happen. So even if your key contact gives a convincing answer about long-term plans, ask about back-up. Who can fill in if that person becomes unavailable for any reason? Check the back-up staffer’s qualifications and experience, too. Just because the firm gives you a name, doesn’t mean the new person can fill the shoes of your original contact.

Retirement Plan Provider’s Organizational Breadth and Depth

One person can’t meet all of your needs as a plan sponsor. It isn’t practical. Ask who else at the firm will work with you, and in what capacity. Again, find out their qualifications and experience.

Another way to address this issue is to ask for an overview of the firm and its retirement plan operations.

More Questions for Savvy Plan Sponsors Evaluating New Providers

If you missed the earlier posts in this series on assessing plan providers, check them out now:

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA? Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.

Key Questions for Your Retirement Plan Provider, Part Two

Retirement plan providers are not all the same. When choosing a financial advisor for the company’s retirement plan, plan sponsors should consider the candidates’ qualifications and experience. You’ll find six key questions about qualifications and credentials in this article. Other key screening questions are covered in “Key Questions for Your Retirement Plan Provider, including the F-Word.”

CFP, AIF, and AIFA as key certifications

Question 1
What training have you undergone and what professional certifications do you have?

This question will start to reveal whether you are speaking with an advisor who understands the special needs of retirement plans.

Smart Investor suggests that you focus on candidates who, at a minimum, hold the CFP designation. The AIF and AIFA designations are even better because they show your advisor is committed to acting as a fiduciary. Plus, the advisor truly understands the meaning of “fiduciary.”

The CFP—certified financial planner—credential establishes that your candidate has been trained in the basics of financial planning. This is a good foundation on which to build more specialized expertise.

The AIF—Accredited Investment Fiduciary—designation requires training in prudent practices for investment fiduciaries.

The AIFA –Accredited Investment Fiduciary Analyst—designation is a more advanced fiduciary designation, as we explained in “The AIFA Credential and Successful Retirement.”

Retirement Advisor Experience with Companies Like Yours

Corporate retirement plan advisors who have experience with plans like yours are more likely to understand the challenges you and your plan participants face. So ask the following questions:

Question 2
How long have you been advising retirement plans and how many retirement plans do you work with?

Question 3
What are the average age range and economic situation of the participants in the retirement plans you work with?

Be careful. A long history as an advisor doesn’t necessarily mean the advisor does much retirement business.

Even an advisor with plenty of plan sponsors as clients may not have experience serving plan participants with demographics similar to your plan participants. Experience can help in identifying plans that work for your participants and management.

Avoid Ethics Violators

Retirement plan advisors with financial ethics violations usually don’t volunteer that information. You need to ask. A serious violation should disqualify the candidate.

Question 4
Do you have any financial ethics violations?

Errors and Omissions Insurance for ERISA plans

Question 5
Do you have errors and omissions insurance?

When your retirement plan advisor carries the right kind of errors and omissions insurance it ensures that the advisor can compensate you for the negative impact on your plan of certain kinds of errors. Make sure you ask about the details of the errors and omissions insurance because many financial advisors’ exclude or are vague about ERISA retirement plan coverage.)

Ask if the insurance covers the advisor’s work with ERISA retirement plans? Also ask:

  • What are the coverage limits?
  • Will you give us written confirmation of your insurance coverage?
Open-ended Screening Questions Pack a Punch

Once you’ve asked the essential questions about credentials and experience, try an open-ended question. The answers can be very revealing about your potential provider’s values and capabilities.

Question 6
What are your strengths and weaknesses as an advisor to retirement plans?

Best Screening Questions for Choosing a Retirement Plan Advisor

Smart Investor discussed other key questions in our post on “Key Questions for Your Retirement Plan Provider, including the F-Word.”

Plus, we will cover more in the future.

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA? Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.