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National News

Baby Boomers are Wasting Wealth in Their Retirement Accounts

Most boomers use mutual funds to fund their 401(k) retirement accounts. New book says there’s a better way to build wealth using separately managed accounts.

“Where to put the money! “ This is one of the most important financial decisions baby boomers will face as they fund their retirement plans during their working years. Then, when they retire, rolling over their plans into an IRA or some other tax deferred strategy to keep their money growing during their retirement years.

Unfortunately, while working, future boomer retirees have pretty much been restricted to investing in mutual funds and company sponsored stock options. It has been discovered that many company-sponsored mutual funds in typical 401(k) plans are overcharging participants and burying those charges in the fine print. Since there are no bills and no checks are written, few complaints are ever registered. Recently, though, Caterpillar is being sued in a large class action for excessive fees in 401(k) accounts.

These 401(k) s defined contribution plans over the years have accumulated huge sums—some $2.9 trillion. Companies are charging as much as 2.5 percent per year on their participants’ money. Considering this rate, a gross investment rate of 10 percent would mean a boomer would net only 7.5 percent. In 30 years at 10% he or she would have a retirement of around $1.6 million; at 7.5 percent it would accumulate to 1.0 million. The different a few points make is significant and, don’t forget, it’s their money.

Furthermore, the number of less than stellar funds in 401(k) s is well documented. Morningstar, a mutual funds monitoring firm, rates most less than 3 stars potentially creating a drag on performance. This means the boomer retirement bound worker has to put up with inferior returns lagging an estimated 2 percent.

In the past, mutual funds seemed to be the perfect place to save for retirement. After all, mutual funds have been the most profitable investment strategy ever developed by the securities industry. Established in l924, simply, a mutual fund controls a pool of money put there by shareholders for investing in a portfolio of securities picked by the fund’s managers. Funds have proliferated with over 15,000 funds out there with assets exceeding $10 trillion with one purpose in mind: reducing investor involvement to one action—contribution of money.

New investment options will be a hard up-hill climb in 401(k) s since mutual funds are so ingrained into these pension plans. Developers are working on overcoming structural and educational hurtles to introduce SMAs and other investment strategies into these pension plans but it will be difficult to break mutual funds’ hold on the retirement plans market, observers say.

However, after rolling over those funds in an IRA, upon reaching retirement age, the typical boomer will have a myriad of investment options: money markets, CDs, individual stocks, bonds, Exchange Traded Funds (ETFs), index funds, hedge funds, even real estate trusts, etc.

There’s even a better option boomers will have when they rollover their funds in a new IRA account: the Separately Managed Account (SMA). Newport Beach, CA investment advisor Don Wilkinson believes SMAs eventually be a more attractive alternative to mutual funds as the preferred way of investing both in retirement plans and after retirement in IRAs and other tax deferred strategies. As the author of Stop Wasting Your Wealth in Mutual Funds…Separately Managed Accounts: The Smart Alternative (Kaplan Publishing), Wilkinson says “Many boomers put their retirement money in mutual funds not realizing they are paying high escalating fees and not knowing less than 20 percent of these funds ever beat the S&P.”

Wilkinson’s book has drawn rave reviews from financial experts such as Ken Fisher, best selling author and Forbes Magazine columnist.

According to Wilkinson, the separately managed account allows boomer retirees more personal control over their securities selection, customized portfolios and high-powered private money managers at their fingertips.

Thanks to computer software improvements and old-fashioned competition, the thirty-year customized means of building wealth for big institutions and the ultra-rich—Separately Managed Accounts -- is now one of the fastest growing financial strategies on Wall Street for average Americans of middle class means.

“When you take a close look at the numbers, it’s more economical to be in separate accounts than in mutual funds because of the skilled professional money managers handling your portfolio,” says Wilkinson. “When you take into account the customized service SMA investors receive and the fact that fees are decreasing, this asset management strategy can annually reduce costs. Upfront minimums should be effortless for retiring boomers who will, for the most part, have a large lump sum distribution to fund a separate account,” he said.

Separate accounts minimums to obtain best coverage across asset classes are in the range of $100,000 to $250,000 even though setting up a SMA can be done with as little as $50,000 initial payment.

The 2002-03 scandal in the mutual fund industry numbed investors to seek more control over their investments. Dark clouds are looming over the industry in 2007. The Securities and Exchange Commission has launched another investigation. This time the SEC says 27 mutual fund companies accepted kickbacks totaling hundred of millions of dollars in recent years, according to the Oct 27 issue of the Wall Street Journal. One source called the allegations “far worse conduct” than previous fund-trading scandals.

While separate accounts are similar to mutual funds, they go a step further by giving control and ownership of the portfolio to the investor.

Mutual funds invest in a number of securities for a pool of investors; a separate account is a tailored portfolio for an individual investor.

What exactly are the benefits of utilizing your retirement funds and setting up a separately managed account?

  • You’ll probably see a higher return on investment. Of course, there are never any guarantees in the market, but Wilkinson insists that separately managed accounts have the capability to outperform mutual funds.
  • You’ll wrest more of your money away from Uncle Sam. If you have an SMA outside your tax-deferred retirement account, a separate accounts manager can do “tax harvesting,” off setting gains with losses to deliver a higher after-tax return than mutual funds.
  • You’ll say goodbye to hidden fees. When you invest in mutual funds, your expenses include loads, redemption fees, 12b-1 marketing fees, trading commissions, and soft dollars – all of which drive your fund expenses higher than disclosed. With a SMA, you pay a yearly fee, usually between 1.5 percent to 3 percent of assets.
  • Enhanced Span of Control. “With mutual funds, a single manager is responsible for watching hundreds of stocks,” says Wilkinson. “It is not humanly possible to do this and do it well.” With separate accounts, managers are responsible for 50 or fewer securities.
  • You can customize your own portfolio. Let’s say you work at IBM. You may not want any of your own company’s stock included in your portfolio because you already have stock options with the company. With SMAs you may include or exclude securities based on your ethical, economic, or political views. This is usually not possible with a mutual fund.
  • Personalized attention is just better. “Call it the prestige factor,” says Wilkinson. “I prefer to simply call it smart investing.” You can’t deny that having private money managers servicing your SMA is superior to casting your lot in with the masses. The knowledge that your portfolio is being managed by a private money manager alongside a Bill Gates or Ford Foundation is a benefit that is hard to ignore.

The boomer retiree needs to know that having your own money manager(s) is no longer out of reach. In fact, independent financial advisors, major wire houses, banks, regional brokers now offer separate accounts, as well as, sooner or later: individual retirement plans.

Stop Wasting Your Wealth in Mutual Funds: Separately Managed Accounts-the Smart Alternative
By Don Wilkinson
296 pp., hard cover
Kaplan Business, Nov. 1, 2005
ISBN 1419520180

Available at,,,


About The Author:

Don Wilkinson is a 30-year veteran of the financial services industry. He owns and operates a successful wealth management firm based in Newport Beach, California. His company oversees more than $500 million in separately managed accounts assets. Wilkinson gives more than 100 seminars a year to independent financial advisors and their clients.

What people are saying about Don Wilkinson:

Kenneth Fisher, Forbes Magazine:
“The first 35 pages of Don F. Wilkinson’s Stop Wasting Your Wealth in Mutual Funds are worth the book’s $20 purchase price. Read them.”

Joe John Duran CFA, author of Start It, Sell It and Make a Mint:
“Don’s down to earth, easy to understand style takes the confusion of our investing and shows in simple terms how separate accounts compare to mutual funds. He shares some of the truths about mutual funds many in the investment world don’t want you to know.”

Russ Wiles, Arizona Republic Newspaper:
"A provocative guide for people who don't think they can pick mutual funds wisely or simply want more personal attention."

Source: Event Management Services, Inc.


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