401(k) Specialist Issue 1 - 2024 - 42

401(k) INVESTMENT INSIGHT
Imminent Crises are Opportunities
for Financial Advisors
By Ron Surz
I'VE WRITTEN ABOUT current dangers in the
economy and stock market, as have others like
Ray Dalio and Jeremy Grantham. For example,
John Hussman estimates potential full-cycle
stock market losses of between 42% and 65%.
On the inflation front, it's ironic that the Fed is
an arsonist charged with fighting inflation fires.
There will be a stock market crash that
causes a recession because we are way out on
a broken limb. These crises create opportunities
for financial advisors who are prepared because
investors will want to protect against a repeat.
This time it's especially critical for 78
million Baby Boomers with their $84 trillion
because time is not on their side. Their loss
is their heirs' loss.
One of these opportunities lies in personalized
target date accounts (PTDAs), a movement
that is just beginning as 401(k) Specialist has
written about in Wilshire and Soteria. There are
currently several PTDAs and more are on the
way, but only a couple place advisors in the
driver's seat. Advisors should seek these out.
Foreword thinking advisors can and should
be prepared to capitalize on the upcoming
crises with a 401(k) investment that empowers
participants with the ability to protect
themselves, and for sponsors to protect in
their Qualified Default Investment Alternative
(QDIA). The growth-or-safety pendulum will
shift big time to safety.
A Critical Advisor Choice
Investment advisors can support PTDAs or
become part of this solution. They're paid more
for being a part of the solution, as they should
be. It takes a team to provide PTDAs. In most
cases, a money manager is the quarterback,
but a couple PTDAs rely on investment advisors
to call the plays shown in the following:
Something for Everybody in Some
PTDAs
PTDAs can give lots of control to plan
sponsors and their 401(k) participants. Most
40
ISSUE 1 2024 | 401kSpecialist.com
PTDAs are most beneficial for self-directed
beneficiaries because they want to engage
and because $1 trillion of the $3.5 trillion in
TDFs is from self-directed participants. This
application is not a QDIA because these
participants have not defaulted. Most PTDAs
are not offered to self-directed participants,
which is another mistake.
In summary, advisors should seek out
PTDAs that:
* Put investment advisors in the driver's seat
* Give plan sponsors flexibility in building
their QDIA
* Support self-directed participants
PTDA users have two choices that are
PTDAs are designed exclusively for defaulted
participants as QDIAs. This is a mistake
because they rely on recordkeeper data to
reveal participant wealth; this is more likely to
mislead than to help because median tenure
of all workers has consistently been less than
five years for the past seven decades.
Plan sponsors should make the QDIA
decision, and they should be given plenty of
flexibility so they can tailor the choice to their
workforce demographics. Personalization is
the ultimate customization.
Advisor as
Quarterback
Everyone contributes & profits.
Plan Sponsor
Investment
Advisor
Software
Money
Managers
Recordkeeper
Plan Sponsors
Partners
It Takes a Team
* Integrate with service providers
* License software
elegant in their simplicity-(1) risk preference
and (2) retirement date-which can
be changed anytime. The risk preference
decision identifies a glidepath and the
retirement date is a point in time on that
glidepath.
Glidepaths
PTDA glidepath design is critical for
success and varies among providers. There
is no standardized glidepath yet, but there
is academic theory that should be followed.
Advisors
* Run the show
* Choose investments
Money Managers
Recordkeepers
* Manage assets
* Promote their funds
* Collect participant choices
* Rebalance
http://www.401kSpecialist.com
401(k) Specialist Issue 1 - 2024

Table of Contents for the Digital Edition of 401(k) Specialist Issue 1 - 2024
