“Matt,” a 65-year-old reader of this column, is about to retire with a substantial 401(k). He has never invested on his own, only through his 401(k). Luckily, his pension and Social Security retirement benefits cover the amount of money he needs to live on to support himself right now.
He wants to know: Where do I turn for expertise if I’m not comfortable with a commissioned salesperson? That question assumes that Matt will roll over his 401(k) to an IRA held at a brokerage firm -- or he may want advice while keeping the 401(k) intact.
Matt is not alone with this dilemma: Any 401(k) participant who has not invested on his own faces the same questions. No matter who Matt retains, there will be an information imbalance between him and the financial professional. (The same holds true for a surviving spouse who was not actively engaged in the financial provider-client relationship during the deceased spouse’s lifetime.)
Should Matt stay with the 401(k)? Since he has been adept at making investment choices for the 401(k), that may be an option. His employer has selected the mutual fund menu for the 401(k) plan, which makes a participant’s job on investment selection much easier than choosing from the universe of investment options.
If he does stay with the 401(k), should Matt change his investment selections in any way? Should he continue making investment choices as he has in the past? Should he change course?
He would need to do so if his pension and Social Security did not cover his lifestyle expenses, but that’s not Matt’s challenge. (Let me know if you have such a situation that you would like to discuss in a future column by emailing me at email@example.com.)
Another option for Matt is to roll over his 401(k) into an IRA.
If you search online for 401(k) rollovers, you’ll discover a number of options. To find a firm that provides services through salaried personnel, some additional research is necessary.
Since last summer, a new U.S. Securities and Exchange Commission disclosure document makes the search easier. Form CRS provides compensation information. Compensation is a potential conflict of interest.
You’ll look for the answer to this question: “How do your financial professionals make money?”
This is a quote from the CRS of one well-known firm that provides brokerage services: “Our broker-dealer representatives are salaried employees who are not paid commissions for products sold, transactions executed, or the amount of assets serviced.”
Form CRS will help answer other questions as well. For example, does the firm have disciplinary disclosures, how is the firm paid and what are potential conflicts of interest?
You can find a firm’s Form CRS on the SEC website (Investor.gov/crs) by searching for the company’s name.
If you are interviewing firms, compare their Form CRS responses. If you have questions about how to do that, let me know -- a story for another column.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (firstname.lastname@example.org). Please visit www.juliejason.com.
DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION