Some attribute this quote to Mark Twain, although no proof exists. Whoever the source, this person possessed great insight into the human condition. The retirement plan industry serves as an ideal example. To explain, I have had thousands of conversations with business owners, chief financial officers, controllers, and human resources directors who oversee their organization’s retirement plans. In almost all cases, when I raise concerns about the fact that participant service fees have continued to increase without these participants receiving any additional services in return and are completely divorced from the services provided, the responses generally go like this:
- We have reviewed everything and we’re fine.
- We have reviewed everything and we’re in line with everyone else.
- Our advisor takes care of all that.
In spite of me pointing out that I can see years worth of exorbitant service fees shown on their publicly available tax forms, these plan sponsors don’t seem to care. Even when I make it clear that I am not looking to sell my services to them, but rather simply explain to them how they can put a stop to these unfair service and fee arrangements, they reply that they are not interested in my services.
Here are some observations about human behavior I can now make as a result of these conversations. People:
- Generally do not want to admit they don’t know about information vital to fulfilling their job responsibilities.
- Assume that if they never heard this information, it must not be true. Otherwise, they would have already known about it.
- Would rather see plan participants lose enormous amounts of money (including their own!) and ignore their fiduciary duties than admit to their co-workers they don’t know something and/or do any extra work.
- Value longstanding relationships more than money and are less likely to scrutinize the value of relationships the longer they have been in place and the closer they are (i.e. friends and family members).
The recent fee disclosure rules and fiduciary standard purport to help protect the interests of plan participants. But as usual, bureaucrats have no understanding of the industry they are
controlling regulating and give little thought to the consequences of these mandatory solutions. Plan sponsors already view the retirement plan as a back burner item because it has no effect on revenue, so they are already looking for any excuse to spend as little time as possible monitoring the retirement plan. Now that brokers will be considered fiduciaries who have a legal obligation to “act in the best interests of the client”, plan sponsors will be even less likely to scrutinize their offering than before.
Our compulsory public school system (private schools aren’t much different in their philosophy) stresses rigid adherence to centrally imposed guidelines and discourages us from delving deeper into a subject beyond what it requires. Our system has long taught use to move on to the next subject once we have displayed minimum competency as defined by the state. These standards don’t require delving deeply into a subject or asking any substantive questions that demonstrate an ability and desire to apply these questions to every day life. So after years of inculcating this mindset into children, what happens to us as adults? The retirement plan industry represents a frightening example in which we now have people with little or no financial skills who the state has taught not to ask probing questions overseeing 6.8 trillion of people’s money. We don’t need more mandates or committees to solve this problem that this kind of thinking has helped to promote.