Crisis management is a well-discussed topic in corporate PR. So it should not be surprising that the upcoming PBS Frontline segment, “The Retirement Gamble,” slated to air April 23, should focus more attention on excessive fees and how they hurt investor returns. (Check local listings here.)
This rare national airing of bad news about abuses and shortcomings in the 401(k) industry should cause serious concerns among millions of plan participants. It should prompt the need for some serious explanations from plan sponsors who rarely receive pointed questions or criticisms from the media and their own plan participants about the boring, esoteric, but critical world of 401(k)s and retirement investing.
As someone who has managed entire PR departments in the financial services industry, here are some modest suggestions for PR pros at mutual fund companies, 401(k) service providers, and even some employers about how to respond to the charges that I expect will be made in this program about how to cope with those rare instance in the media when the financial services industry is hit with some bad news.
Here some suggestions:
First, investors are more savvy and angry about the financial services industry’s poor reputation today than they were a few years ago. The mortgage industry debacle, LIBOR and other market price-rigging scams, personal wealth losses in their portfolios and deteriorated home prices have all made individuals rightfully skeptical about the behind-the-scenes operations of large financial firms.
Even worse, these financial losses are personal. They also come at a time when almost all Americans know someone who has lost a home or been laid off. The mass unarticulated sentiment is that the U.S. financial system has failed and may never be able to produce the level of prosperity it did in earlier generations.
For instance, a recent survey found Bank of America rated as the company with the second worst reputation in the nation. And since most investors are woefully unaware about the details about what drove the recent recession and declines in overall wealth, plan sponsors investment firms should not assume all is well.
Today, investors of all ages are very concerned about their ability to retire. Recent attacks on Social Security, Washington’s political stalemate and the fact that real wages have not increased in a decade all weigh in on the poor ability of investment professionals to deliver the average American out of this financial desert and produce a financially secure future. This should turn the practice of “wealth management” on its head, especially as 99% of Americans have suffered from wealth destruction.
Second, as detailed in my book, the 401(k) industry has some serious problems that have festered for decades.
These problems should be the main topics of the show, but due to the restrictive nature of TV as opposed to print, these serious flaws will only be generally mentioned. But these problems should excite individuals to complain. That is a good thing for investors, and bad for the 401(k) industry and its related providers.
What To Do
1–401(k) providers and employers and their investment pros should tell the truth. Don’t do an NRA-like, anti-messenger campaign against PBS and Frontline. Some comments to that effect have already been posted on Linked-In and they are without merit. Disclose all fees and more pursuant to the DOL’s new fee disclosure regulations.
2–Explain what services 401(k) participants are receiving and be prepared to justify their costs, if possible. If you don’t know the answer to either of these key questions, you are in trouble.
3–Be prepared to explain why there are not more investment choices in the 401(k) plan or why they all are in a few fund families. This will be very awkward if the funds are offered from the same family as the 401(k) service provider, such as an insurance company.
4–Be prepared to explain why there are no ETFs or more low-cost index funds in the investment menu.
5–Think out of the box and be prepared to explain why an employer and an employee have the same long-term 401(k) goals and be ready to prove it. And for the most intrepid plan sponsors, link wages, including any raises issued over the past few years, to matching 401(k) contributions and average portfolio returns. If the plan sponsor has not made any company-wide raises recently that problem should also be aired since it is impossible save for retirement if wages are stagnant.
The misleading mantra that employees should save more, while neglecting the fact that they have not received raises, obviously neglects the fact that employees have been pushed into a financial corner: They can either suffer a decline in their standard of living (by saving more of their finite take-home pay) or spend more of their pay to meet living expenses.
6–Explain what risks the 401(k) provider is assuming compared to the individual plan participant. This will be a tough one since most employers have intentionally shifted investment risk to an ill-prepared group of employees.
This will have to be a well-prepared response since it may contradict one of the key quotes made by veteran mutual fund expert, John Bogle, that may be shortened in the Frontline show, but is included in my book.
The Bogle quote is: “The financial system puts up zero percent of the capital and takes zero percent of the risk and gets almost 80 per cent of the return and you, the investor in this long time period, an investment lifetime, put up 100 percent of the capital, take 100 percent of the risk, and get only a little bit over 20 percent of the return.”
But here is a hint: I would not dispute this statement unless I have some solid facts. Mr. Bogle has 40 years of experience and knows the fund and 401(k) business inside out. His succinct summary may explain what drives the entire retail investment industry.
7–Explain how 401(k) plan sponsors are complying with the new DOL regulations. Even better, explain how the plan sponsor is exceeding the disclosure requirements.
Finally, the PBS Frontline show will probably not revamp the 401(k) world. Most investment pros will bet on this and hope its fades quickly into the background.
But if the show sparks some interest, plan participants will be posing serious, embarrassing questions about conflicts-of-interest and lack of fiduciary oversight on the part of plan sponsors and 401(k) providers. And for too many professionals, these questions will be impossible to answer. It will also create a rift between employers and employees that will not be easily repaired.