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PBS Frontline "Retirement Gamble"

“The difference between the almost right word & the right word is really a large matter — it’s the difference between the lightning bug and the lightning.”

— Mark Twain

Given my chosen career as investment advisor and financial planner, I couldn’t help but catch a recently aired PBS Frontline show, “ The Retirement Gamble,” promising to explore whether today’s retirement solutions are up to the challenge of preparing us for retirement. Explore these challenges it did. But in doing so, it overlooked a few points that, like the difference between a lightning bug and lightning, seemed too critical to ignore in helping us sensibly act on the information.

To its credit, “The Retirement Gamble” exposed critical issues that plague today’s retirement plans, including all-too-common industry failures against which I have long railed as well. Specifically, many retirement plans are exposed to a triumvirate of concerns:

1. Opaque and burdensome expenses: The show discussed the insidious impact that undisclosed expenses have on investor’s accounts, commonly eating away as much as a third – sometimes even two-thirds – of available returns. It’s hard to believe, but the math makes it clear.

“What happens in the fund business is the magic of compound returns is overwhelmed by the tyranny of compounding costs. It’s a mathematical fact. There’s no getting around it.”

— John Bogle, Vanguard Founder

2. Misguided investment advice: An interrelated concern in many traditional retirement plans is the prevalence of reactionary, “active” investing, in which the focus is to try to outfox the market, rather than seeking to patiently, efficiently capture market returns.

“If you want to gamble with your retirement money, all I can say is be my guest. But be aware of the mathematical reality. Maybe you have a 1 percent chance of beating the market over time. It has been proven right year after year after year because it can’t be proven wrong. It’s a mathematical certainty, a tautology, if you will.”

— John Bogle, Vanguard Founder

3. Fiduciary versus suitable advice: Strike three against many retirement plans is the limited demand for fiduciary advice that places participants’ best interests well ahead of any profit motives. Instead, the more conflicted “suitability” standard is often considered sufficient. By perpetuating a system in which conflicts of interest prevent investors from receiving fiduciary-level investment advice, retirement planning can indeed become more of a wager than a carefully structured solution.

“A non-fiduciary recommendation] doesn’t have to be the best thing that you could pick out for them. It’s just something that’s suitable. It’s OK. I can’t believe that somebody would want to get into a business and then stay in the business of merely being suitable.”

— Ron Lieber, New York Times “Your Money”

“We have a system today where anybody can hold themselves out as an expert. They call themselves retirement planners, financial planners, advisors, et cetera. We don’t have a standard way that the consumer can figure out who has the expertise to provide advice.

— Phyllis Borzi, Department of Labor

All three concerns – opaque costs, poor advice and conflicted advice – are excellent points. I have long grounded my own services in combatting the same. For example, I discussed the value of fiduciary levels of advice in this blog post, “ When Your ‘Advisor’ Isn’t,” and offered sensible investing guidelines in another recent post, “ Investment and Life Wisdom from Swedroe and Buffett.”

So I am delighted to see these topics aired in the popular press. That said, I feel the segment failed us to a point, by implying that these challenges have resulted in an utterly broken system. What was missing from the show was the word “many,” in that manyplans are fraught with these issues … but by no means all of them.

In reality, there are a number of 401(k) plan providers and advisors like me who already offer solutions that are grounded in these same tenets that are critical to retirement plan success. Should industry-wide improvements continue? Absolutely. But the segment does a disservice by implying we must start from scratch to achieve improvement. The movement already is well under way, and I am proud to be a part of widening its reach.

“If you’re working with somebody who is trying to sell you financial advice, you say to them, ‘Are you acting in my best interest here? Would you be willing to sign a pledge that says that you’re going to act as my fiduciary at all times with all products? Because if you’re not, then I’m going to leave.’ And it’s really just as simple as that.”

— Ron Lieber, New York Times “Your Money”