Although on most day I address a single topic concerning your retirement plan, your 401(k), your IRAs, investments such as mutual funds or bonds, there are several tidbits that are worthy of inclusion – just not a full-on article. Our Odds ‘n’ Ends edition on retirement planning hopes to fix those items that slip through the cracks.
First up: wills. You have to have them if you have any assets at all. They not only take the hassle out of who gets what but they do so without a lot of court involvement. They should be updated regularly or at least reviewed every couple of years. The mistake people make is with their retirement accounts. The beneficiary named on these accounts gets those accounts even if your will suggests otherwise. An ex-wife or ex-husband, no matter how far removed, can be the actual owner of your lifetime investments if they are named as such.
Second: PTPs. I have never mentioned PTPs or as they are sometimes referred to as MLPs in large part because they are not that well-known. But as investors who watch the markets on a daily basis know, volatility is unlikely to go away anytime soon. Now much of the erratic trading and market swings of late have had low volume – meaning most traders are on holiday – and a mood that is generally unsettled, there are some steadily performing niches that might be worth a look, particularly if you are near retirement and wonder if a down market will greet you as you exit the workforce.
PTPs or Publicly Traded Partnerships came into existence about 20 years ago. In many cases they are referred to as MLPs or master limited partnerships but they differ in management. A PTP is a partnership whereas a MLP has a managing partner with the partners investing capital. On the surface, they look like investment clubs but the focus is on, in many instances the oil and energy delivery systems. There are some financial and mortgage PTPs available but the vast majority of these securities focus on commodities of one sort or another.
The attraction is the yield (often as high as 7%), the regularity of the dividend, and they have some tax advantages (which do make them the best choice inside a tax-deferred account). Exercise some caution when buying these as fund as the expenses can be higher that you might expect. There are number of ETFs and ETN that can give you some exposure and some protection of your assets.
Third: 401(k) Fees. Your plan administrator will now, or at least will, have access to information about how much you are being charged for your participation in your 401(k). The disclosure which will take effect in 2011 will allow them to see what we already assumed they could see. The idea has been floating around since the end of 2007. But one wonders how much it will change the way these plans operate.
The goal behind the regulation: “Improving disclosure will mean that plan fiduciaries can make more informed decisions about important plan services, the cost of the services and the potential conflicts of interests that their service providers may have” according to the Labor Department’s Employee Benefits Security Administration.
Knowing how advisors and the firm are paid, what fees they charge and other information along with formalizing the disclosed data advisors and brokers via written disclosure explaining their services and fees simply shifts the fiduciary responsibility around a bit. Now you can blame the plan administrator if your accounts comes up hundreds of thousands of dollar short because the plan charged you fees you didn’t know about.
Fourth: The Dodd-Frank Bill. Although it is the right first step towards regulatory reform and we think it will be a much needed overhaul, there are things in the bill that may have gone unnoticed. For mutua, fund investors, usually not as savvy as the rest of the active investment world, there are some protections designed to save you from your own timing. Mutual fund advertising has focused on the short-term results as a way to draw investors. Now that will be scrutinized more closely by the Comptroller General.
The Bill also left the most conservative investment in many 401(k) plans in a sort of regulatory limbo. In the short-term this is good. Any immediate action taken by the bill on stable value funds, changing the designation of what they are, could have had an unnecessary impact on the numerous investors who hold these funds. Stable value funds are essentially money markets but with higher returns resembling intermediate bond funds. Depending on how they are designated, the fees for these funds could go up under rules for wraps and derivatives.
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