ETF Strategies as Retirement Solution

Independent Fiduciary & Congressional Expert Shares Expertise

Sep 21, 2009

Matthew Hutcheson is an independent pension fiduciary that is well recognized and trusted in the world of finance, economics, and retirement plans.

Matthew Hutcheson is a congressional expert, and recognized as a dedicated advocate of investor and plan participant rights. Suite101 spoke with Hutcheson to get his viewpoint on ETF strategies in retirement plans.

Fiduciary Standard of Care for 401k Plans

Hutcheson explains to Suite101 that the biggest hurdle the 401k industry currently struggles with the shift from Wall Street’s “suitability” environment to a true “fiduciary.” In other words, the 401k industry was built upon a web of statutory exemptions permitting service providers to skirt fiduciary responsibility. This hurts plan participants.

Hutcheson has worked with Congress, the Department of Labor, the SEC, and the Treasury to develop a policy requiring the prevalence of the fiduciary standard of care. Once the fiduciary standard is a requirement, it will lead to a revolutionary shift in the 401k industry; the consequences of that shift will accrue to the participants. Hutcheson has played a significant role in bringing that change to the industry working closely with the agencies above.

ETF Strategies Show Less Volatility in Retirement Saving Plans

According to Hutcheson Exchange Traded Funds (ETFs) are investment vehicles whose time has come. ETFs strategies generally show less volatility than traditional mutual funds. In the past there were administrative, record keeping, and custodial challenges with maintaining ETFs in employer sponsored retirement plans, like 401k plans. “Some service providers tried to offer ETFs, but just couldn’t make it work,” says Hutcheson. “A select group of leaders has emerged in the 401k industry that appears to have figured it out,” and to his knowledge they do not yet have many competitors. “It will be good for the industry for these leaders to continue to gain momentum.”

Suite101 asked Hutcheson about the current fluctuations in the stock market and the impact on the industry. Many businesses have been hurt by the current state of the economy. However, the culture of speculation that many 401k plans have been entangled in for so long simply does not exist in the plans Hutcheson manages.

Hutcheson believes that the participants in the plans he is responsible for experience less volatility and losses than perhaps their peers or family members. Those protections were put in place many years prior. “Economic volatility is not something you react to,” explains Hutcheson. “It’s something you plan for and maintain a true and steady course through the good times and the bad.”

Current Challenges Facing Independent Fiduciaries

Hutcheson explains and Main Management confirms that the most significant challenge is helping 401k participants understand why their 401k is different than their spouses or their neighbors. For example, a 401k plan managed by an independent fiduciary may have more disciplines in place. An independent fiduciary plan may provide pre-constructed portfolios to choose from instead of individual funds. That may be unfamiliar to some, but once understood, eagerly welcomed and appreciated.

“A second challenge is increased transparency,” says Hutcheson. “That sounds strange, I know, but it can be difficult to explain to a 401k participant why every fee is showing up on their quarterly 401k statements. They may jump to the incorrect conclusion that their plan is being charged new fees, when in fact those fees have always been there, just hidden.” This can create the potential for short term misunderstanding. However, in nearly all cases, the total plan cost will be less when an independent fiduciary is involved, and costs are disclosed.

According to Hutcheson, a third challenge is the lack of a marketing budget. The financial industry spends hundreds of millions each year advertising their services. Independent fiduciaries usually don’t advertise, nor can they due to the lean budget with which they operate. Thus independent fiduciaries are at disadvantage in that regard, and have to rely on reputation, relationships, and word of mouth. “I’m hopeful that the market will objectively look past the flash and dazzle of Wall Street’s marketing machine and consider independent fiduciaries based on merit,” concludes Hutcheson.

The copyright of the article ETF Strategies as Retirement Solution in Business Leaders in the News is owned by Britta Stromeyer Esmail. Permission to republish ETF Strategies as Retirement Solution in print or online must be granted by the author in writing.