The “Frontline” documentary that highlighted American workers' biggest obstacles in saving for retirement left a bad taste in the mouths of advisers and industry representatives.
Last Monday, PBS ran “The Retirement Gamble,” pointing out that the fees — including 12(b)-1 fees — that workers pay for their 401(k)s are a major obstacle to saving for retirement.
“The 401(k) is one of the only products Americans buy that they don't know the price of it,” Teresa Ghilarducci, an economist at The New School, said on the program. “It's one of the products Americans buy that they don't know its quality. It's one of the products Americans buy that they don't know its danger.”
Retirement plan advisers said they feel that they were lumped into the same category as brokers who are in the 401(k) business only for rollovers and who don't care about the participants' difficulty in saving for retirement.
“It was horrifying. It was the same message of advisers being bad and investments being expensive,” said George P. Fraser, managing director at Retirement Benefits Group LLC. “We spend 50 days a year with these employees, helping them. I find it offensive when I think of the days my team spends sitting down with workers who are making less than $30,000 a year.”
Much of the work behind being an effective adviser to a retirement plan is helping workers get their savings rates up and ensure that they're taking advantage of the saver's tax credit, he added. Education is also a large part of what these advisers do, Mr. Fraser said.
Employee guidance doesn't come for free, noted Bo Bohanan, director of retirement plan consulting at Raymond James Financial Inc.
“The most ironic thing is that the first part of the video keyed on these participants who need advice,” he said. “They want to cut the adviser out, yet they need advice.”
Others applauded the aim of the “Frontline” episode but noted that there were other shortcomings.
“I wish there were more discussions on the adviser space and what fiduciary advisers are doing, but I get that we're only a subset of a broader space,” noted Michael Kitces, partner and director of research for Pinnacle Advisory Group Inc. “I'm upbeat on seeing a lot of the issues on 401(k)s getting exposed a little more.”
Still, he feels that the episode conflated “people's personal problems with industry problems.” For instance, the documentary highlighted tech company workers whose retirement savings were largely stashed away in company stock and who ended up losing close to everything after the tech wreck in 2000.
A negative spotlight was also cast on the use of actively managed mutual funds in 401(k)s, which come with a heftier price tag for participants, and the payments brokers receive for recommending them.
“They're saying, "Why should I distribute your funds unless you pay me to?'” John Bogle, founder of The Vanguard Group Inc., said on the program. “"You get these big management fees — I want some of it. You're getting plenty. Give me some.'” He sang the praises of cheap index funds, drawing up a hypothetical example of a fund that charges 2% in fees and returns an average annual 7%. Mr. Bogle noted that over the course of 50 years, the fees will devour two-thirds of savings.
That's one of the stickiest issues for advisers.
“I'm in the camp that believes there is value in active management and that we shouldn't eliminate it,” Mr. Kitces said. “I'm a supporter that low-cost index funds should be an option in every 401(k) plan and that they should be the default. But if people want to go out of their way to choose an active manager that adds value, then that's their right to do so.”
Jude Metcalfe, president of DST Retirement Solutions and president of The SPARK Institute Inc., a provider advocacy group, noted that the episode misses the larger point: Workers' inability to save altogether is the real problem.
“If we don't get people to save, it doesn't matter what they invest in,” he said.
Still, the show has fans on the fee-only advisory side.
Denise Wilcox, a fee-only adviser at Wilcox Advisors Inc., said people need to be aware of the conflicts of interest brokers have with their clients, particularly in the 401(k) space.
“People don't know the difference between how brokers are working under a standard of suitability and advisers are working under the fiduciary standard of care,” she said. “I think every investor should watch this.”
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