Who Do You Trust With Your Retirement Savings?

From the October 2014 issue of Hark!

When you’re investing your retirement savings, you have options. While tax-favored accounts are generally recommended for retirement savings, you still must decide which accounts to use.

Chances are you can save through the United Methodist Personal Investment Plan (UMPIP) or Horizon 401(k) Plan, defined contribution plans administered by the General Board. If you’re married and your spouse works, he or she likely has access to an employer-based plan. You also could be considering other options available from a variety of sources including banks, investment advisers and brokerages.

Each choice comes with opportunities. For instance, you might be eligible to earn matching contributions from your employer if you invest a certain percentage of your pay in UMPIP or Horizon; if you’re married, your spouse might also be able to earn a match from his or her employer. That matching money is an immediate return on investment—often a 100% return—so it pays to invest enough (in both plans) to earn the maximum match. But if you have additional money to invest, you might be wondering where and with whom to invest it. And if you’ve already retired, you might wonder whether you should keep your retirement accounts with the General Board. If you are considering working with an investment adviser, here are some things you should know.

Comparing Your Options

When deciding where to invest, you should make sure your choice is a good match for your needs and investment style, and understand the benefits and the costs of each option.

Wespath—the investment division of the General Board—offers a diversified fund offering from which you select investments to create your portfolio. The seven investment funds are managed by highly respected investment managers who aim to achieve above-benchmark performance while prudently controlling risk over extended time periods.

Investment brokers—who are sometimes referred to as investment advisers or financial planners—serve as middlemen. They recommend and purchase stocks, bonds and other investments on your behalf, and manage those investments for you.

While advisors can provide valuable advice and insight, they may have conflicts of interest depending on how they’re compensated. By contrast, Wespath provides unbiased, confidential financial planning at no charge1 through EY,2 a leading financial services firm. EY doesn’t sell investment or insurance products, so you can be sure their advice is guided only by a desire to help you choose what’s best for you and your situation. In addition, participants in General Board-administered plans can use LifeStage Investment Management Service to manage and automatically adjust their investments.

Assessing an Adviser

If you are considering using an adviser, make sure you do your research before trusting him or her with your hard-earned assets. What’s best for an adviser’s business may not be best for your retirement account. Here are the top five things you need to know:

  1. How is the adviser compensated? Investment advisers can be broadly categorized as asset-based, fee-based and/or commission-based.

    Asset-based—You pay a percentage of assets managed—typically .5% to 2%. This creates incentive for advisers to earn high returns, but they may take more risks to grow the account (which would increase their income). Since accounts may grow or shrink based on the overall financial market performance and not the guidance provided, brokers may be rewarded without providing value.

    Commission-based—You pay commissions when brokers purchase investments. Advisers have an incentive to sell products that pay the largest commission, and may encourage more frequent investment moves (selling one fund to buy another) to generate additional fees. These arrangements may not be transparent, since advisers are not required to disclose commissions at the time of purchase or sale.

    Fee-based—You pay an agreed-upon fee for advice that is not tied to investments. While fee-only advisers may not have conflicts of interest, the scope and/or number of hours of advice may be restricted, which can be too limiting for some investors. Advice can also be prohibitively expensive.
  2. What are the adviser’s credentials? Advisers can belong to several professional organizations, which have different designations and credentials. The Financial Industry Regulatory Authority (FINRA) offers information including credentials and requirements the individual must meet.
  3. Is the adviser licensed? Licensing is very important, especially if you have grievances and pursue litigation seeking damages. If your adviser is not licensed, there may be no way to recover losses, even if you win a court ruling or arbitration hearing. Request an adviser’s Form ADV—the uniform form used by investment advisers to register with both the Securities and Exchange Commission (SEC) and state securities authorities—to review his or her licensing details.
  4. Has the adviser received any complaints? The Form ADV details problems with regulators or clients, business practices, fees, conflicts of interest and disciplinary information. A supplement, which must also be available, provides information about the specific individuals with whom you will actually work.

    More comprehensive details about disciplinary problems are available from your state securities regulator and are stored in the Central Registration Depository (CRD).
  5. Does the adviser have a succession plan? A recent report shows that many advisers do not have an adequate succession plan. Many advisers operate semi-independently, which means that if your adviser leaves the business, there may not be anyone who knows the details of your financial plan.

Learn more at www.gbophb.org/broker.


1 Costs for these services are included in the General Board’s administrative expenses that are paid for by the funds.

2 Services are available to active participants and surviving spouses with account balances, and to retired and terminated participants with account balances of at least $10,000.

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