Boomers are Wasting Wealth in Their Retirement Accounts
boomers use mutual funds to fund their 401(k) retirement accounts.
New book says there’s a better way to build wealth using separately
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
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
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
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
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?
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
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.
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.
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
- 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.
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.
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.
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.
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
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."
Event Management Services, Inc.