What The Changes To UC Retirement Plans Mean To Investors

Alpine Financial Partners

As a registered Investment advisor representative who grew up here in Los Alamos and whose parents both worked for the University of California, I always do my best to be aware of what is happening with my client and prospect base. 

About a month ago I learned that effective July 2, 2015 the University of California was “streamlining” the investment choices of their 403(b) and 457 retirement plans. I was also able to attend one of their hosted webinars explaining the changes and how it affects participants. 

The most critical aspects are the “streamlining” of investment options and the availability of “BrokerageLink”. The 457 and 403(b) plan used to contain a multitude of various investments; enough that an involved investor could potentially create a portfolio suitable to their personal risk tolerance and time horizon. Today the plans resemble that of most 401(k)s. It contains several Target Date Funds, a few passive index options, and a handful of active mutual funds.

The shrinking of investment options in Employer Sponsored Plans in my opinion is the fact that legislation now makes the employer accountable to higher fiduciary standards. Standards that employers don’t want to accept the liability for. Why offer more options when they can limit their liability with fewer options and Target Date Funds?

Target Date Funds (TDFs) shift investors from stocks to bonds over time in an effort to become more conservative as retirement approaches. TDFs are widely criticized for the limits of their mass market approach.

TDFs cannot incorporate all the relevant personal facts that determine the ideal allocation for one’s retirement investments, and investors can find themselves missing growth opportunities or accepting unnecessary risk in an increasingly volatile market.

Thanks in large part the Pension Protection Act of 2006 many employees now have access to individual investment advice by professional advisors. Employers have enhanced their retirement plans to include a brokerage window opportunity so that plan participants have more choice and greater flexibility with their retirement investments. This option, known as the Self Directed Brokerage Account (SDBA), exists in 401(k), 403(b) and 457 plans where participants will have access to professional management, stocks, bonds, mutual funds, and ETFs. 

All UC, LANS, LATA, State and County (PERA), Edgewater, and Intel employees have this special Brokerage window. Fidelity refers to it as BrokerageLink. Check with your HR Benefits department or look in your investment options to see if your plan contains this window to greater opportunities and the peace of mind you deserve.

Those plans that have been enhanced with a “brokerage window” now have greater flexibility and access to the same investment style and manager as High Net Investors, Institutions and Foundations. The brokerage window often enables participants to finally retain the direct personal advisory support needed to prudently govern their account. 

How it works: Participants activate their brokerage window account with their plan provider. An additional account number is issued and participants may transfer funds back and forth from their standard account to their new brokerage window account.  The funds are still in the 401(k) program but now may be invested among thousands of mutual funds and individual securities available on the brokerage platform.  Both the core investments and brokerage window account positions are displayed online and in a consolidated statement.

Working with a trusted advisor: Participants may retain the professional services of a Registered Investment Adviser (RIA) through an Investment Advisor Representative (IAR) to help govern their retirement account and create a custom portfolio that is both risk-appropriate and coordinated with the other assets in your financial plan. As a fiduciary, an RIA provides comprehensive and continuous support, is required to put the investor’s interests first, and must avoid conflicts of interest.

As an Independent IAR I have a relationship with one such RIA, The Pacific Financial Group (TPFG), which has been working with Independent advisors for nearly 30 years. One of their niche areas of expertise is offering brokerage window management and fiduciary responsibility through collaboration with plan custodians such as Fidelity and PERA and Independent IARs such as I. TPFG offers 32 different SEC registered professionally managed portfolios comprised of Mutual Funds, ETF’s and individual securities to meet your individual situation, time horizon, and tolerance for risk.   

According to the study of eight large 401(k) plans with more than 425,000 participants and $25 billion in assets, by Aon Hewitt, a consulting firm, and Financial Engines, an investment advisory firm, between 2006-2010 retirement savers who sought investing advice enjoyed a median annual return almost 3 percent higher than those who didn’t – even after the fees they paid for that advice.

I happen to be the only Independent Investment Advisor in Los Alamos with access to The Pacific Financial Group. For more information about SDBAs, Alpine Financial Partners, and my Broker Dealer Cetera Advisors, LLC visit my website at http://www.alpinefinancialpartners.com/p/self-directed-brokerage-account


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