When Mark Scheffler, principal and chief compliance officer of Appleton Group Wealth Management, founded his firm 10 years ago, it was the first in Northeast Wisconsin to offer fee-only services. Scheffler earned credentials in financial services following a career and degree in music education. He sat down with Insight Editor Margaret LeBrun to talk about upcoming changes in 401(k)s.
IN 2012, WE WILL SEE A revolution in 401(k)s. The Department of Labor is getting serious about ensuring that people have a better experience than they have had in the past 10 to 15 years. It will require (by Aug. 30) that all of these hidden expenses, fees, compensation and conflicts of interest will now be brought into the open. That’s a killer for so many of the bank and insurance plans that have been far more expensive than they needed to be – and also for those plans that are just so full of conflict of interest.
I run a wealth management program. What I do is analyze market trends and position our clients so that they’re invested consistent with those trends. When I started my own shop 10 years ago, the first thing I did was eliminate commissions. With a commission structure, the person who is making a recommendation is trying to sell you something.
About 15 years ago, a lot of companies moved from an older model of 401(k)s, where a professional money manager managed their employees’ portfolios. At that time, when the markets were doing really well, banks and insurance companies jumped in and offered 401(k) plans that gave people a whole bunch of choices. Workers had to become expert portfolio managers. But study after study has shown us that participants don’t want that responsibility. They want someone to make those decisions for them
In the last 12 years or so, many investments in 401(k) plans just haven’t made any money. The NASDAQ is about a third lower than it was at the turn of the century.
So many investors, so many 401(k) participants, especially, have been on the wrong side of the market and it’s just been a real killer for them.
American investors need to get between 7 and 9 percent on average per year just to sustain the current American standard of living. Over the past 12 years, the S&P has returned zero. The longer American investors go without gaining that 7 to 9 percent, the more likely the American standard of living just won’t be sustainable. And that should just scare the pants off of everybody.
We took over a 401(k) plan last year that was run by a large insurance company, and they partnered with a large broker. When we started to dig into the fees that these two entities were charging, it was like peeling back an onion, where you peel away one fee, and another one appeared. We were able to reduce plan costs by over 50 percent, just eliminating all these unnecessary fees.
People in our industry have made it seem as if moving your 401(k) plan has to be this huge, monstrously, difficult undertaking. They say, “You can’t take your plan to bid, that’s going to take hundreds of hours of resource time.” And that’s just not the case. We’ve whittled it down to a two-hour, start-to-finish process. That’s it. It couldn’t be any easier. Every 401(k) plan should be going to bid right now, because the landscape has changed so much.
Employers will be put in a really nice position, because now, for the first time ever, they’ll know exactly how much their 401(k) plans have been costing them and their employees. In the past, a lot of that competition has been hidden inside of these 401(k) products. No more. The jig is up
The last three years have just been extraordinary in terms of uncertainty, and upheaval. To have market trends that should last years, literally last hours, is unbelievable.
My advice? Be as flexible as you can. Be prepared to change your mind. And be prepared to question answers as much as answer questions.