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Retirement Plan ‘Final Presentations’ Can Do Real Damage

Aug. 7, 2015
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By Jonathan Broadbent

Learn more about Jonathan on NerdWallet’s Ask an Advisor

A funny thing happened on the way to cleaning up your retirement plan. A “finals presentation” went terribly wrong, again.

What, you may ask, is a finals presentation? Great question! A finals presentation is part of the vetting process in which someone at the company you work for decides who is going to run your retirement plan. The presentation is essentially a sales pitch by a candidate to run the plan. Your company might not actually refer to this as a “finals presentation,” but that’s what people in the investment world call it when given the opportunity to tell a company how great they are at running retirement plans.

Many people in finance spend years hoping for a shot at finals presentation, considering it a fast track to a successful career. That’s because once they sell the plan, they can go about the more lucrative work of selling rollover IRAs, brokerage accounts, insurance and so much more to the company and its employees.

A host of companies, both large and small, would love the chance to pitch your employer in a finals presentation — banks, insurance companies, investment companies, brokers and financial advisors of all stripes. I’ve been to more presentations than I care to remember.

The people at your company who listen to these presentations will be making all the key decisions about your plan. Among them: who (if anyone) will be the plan’s advisor, who will serve as tax advisor, which lawyers who draw up documents for the plan, who will hold the money, and what investments will be offered. This makes these meetings extremely important. If they make the wrong decisions, you could end up having to work extra years to be able to retire.

On paper, finals presentations appear valuable, and I’d even argue that they’re necessary if you want a good workplace retirement plan. But sometimes, the entire process gets hijacked, and workers get cheated, just so a few people can enjoy themselves.

A frightening lack of accountability

Here’s the frightening truth: Your retirement plan may be the only thing your company decides that it might never be held accountable for.

It is, unfortunately, very common for unsophisticated employers who don’t really understand how retirement plans work to give in to sales or political pressures and allow their plans to fall into the wrong hands. Worse, imagine what happens if key decision-makers at your company just don’t care. Or perhaps they want to milk plan salespeople for all they’re worth. If your company’s retirement plan is big enough, the finals presentation salespeople might fly those decision-makers to their company’s headquarters, put them up in a fancy hotel and show them a good time — a steak dinner on the river in Chicago, a night out in New York, a ballgame in Boston.

The people making the decisions about your retirement plan might be dazzled by this special attention, even though it has nothing to do with your plan or how well it’s run. The salespeople have done the math. By spending several thousand dollars wining and dining your company’s leaders, they might make hundreds of thousands of dollars in fees by managing your plan. That’s money that comes out of your accounts — money that isn’t compounding to create retirement readiness for you. It means you might have to work extra years to make up the difference in lost earnings.

Want to work an extra two years so a few executives at your company can enjoy a night out on the town?

It might even just be for show

Often, the decision-makers’ minds are made up well before the finals presentations. They might want to hire a friend or personal financial advisor — or the broker or insurance agent of somebody high up at the company, or the firm’s bank or accounting firm — but because they want the appearance of fairness, they schedule a few finals presentations.

I can usually tell when this is happening. Since my firm is not a sales organization and not affiliated with investment providers, we don’t pay for fancy meals or fly anyone anywhere. Companies that aren’t serious lose interest in us quickly.

In a recent example of a presentation gone wrong, we were invited to a finals presentation by a vendor to a 401(k) plan. We were one of three firms that were given only a few pieces of very basic information about the plan. Wanting to do the right thing, we requested details about how all of the plan fees work and asked for copies of the service agreements. We were told we shouldn’t need such information — which made it impossible for anyone competent to address the plan’s cost-effectiveness or functionality.

This struck us as very strange behavior — until we realized that these people already had their minds made up about whom they were going to work with. They were meeting with two other firms only to create the appearance of due diligence. Someone close to the matter gave me a heads-up so that “I didn’t waste too much time on them.” Sure enough, when we showed up for the finals presentation, the key decision-makers didn’t even bother to attend the meeting. The few people who were there didn’t ask a single question.

In a similar example, a key decision-maker was presented with an action plan to fix several major problems, all designed to help his workers better prepare for retirement. Instead, he was swayed by a slick broker who showed him how he could have doubled his money the year before, if only he’d been in certain funds. Funny how hindsight makes any stock-picker a genius.

Anyone hardworking and lucky enough to be invited to finals presentations shouldn’t expect to win all of the business. No one can be all things to all people. However, there is only one lens through which these evaluations can be viewed: What is in the best interests of the plan and its participants? No other means of measuring a group retirement plan’s service providers should ever be accepted.

All of this effectively makes retirement plans a bastion of deceptive sales practices — sales practices in which your co-workers might even be complicit.

Image via iStock. 


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