Most everyone is aware of the significant seachange occurring within the U.S. retirement industry. We’ve documented for years the demise of the traditional defined benefit pension and the push by sponsors to use defined contribution plans. This trend has been most notable among corporate plan sponsors, but we are now witnessing this migration in public and multi-employer plans, too.
We don’t like it, especially since it places an unfair burden on most people in this country who are now being asked to become investment management professionals without the appropriate skills to handle this responsibility. Sure, defined contribution plans give the individual some freedom through portability, but at what cost?
We’ve seen the results from this policy change, and they aren’t pretty. In fact, they are fairly ugly. As if that isn’t bad enough, try getting advice from the big wirehouses with an account balance of <$250,000. That’s right, an investor with a “small” account balance will be shuttled to a call center. Unfortunately, size matters in the financial service industry!
According to an article by Jeb Horowitz, Advisor Hub, Merrill Lynch will only pay their brokers full commission on accounts greater than $250,000, “while giving one-time incentives for referrals to Bank of America’s no-frills Merrill Edge platform. Well, given the average DC balance, that would basically exclude most everyone that wants to roll a DC balance into an IRA. So much for a helping hand.
This post was not intended to pick on just Merrill Lynch, for many of the other wirehouses are doing the same thing. According to Horowitz, Morgan Stanley and UBS are only offering payouts on accounts greater than $100,000.
So I repeat, we force those less capable of handling a retirement from a DB plan providing a monthly check into a DC plan where they are now responsbile for funding, managing, and dispersing their acccount. But, when they begin to start the process of dispersing they are most often too small to get the individual expertise that they so desperately need. No retirement crisis? Are you kidding me!