iSectors Chief Investment Officer, Chuck Self, provides further insight regarding an article entitled, Fixing ERISA to Provide Sufficient Information (see below) which was featured in Investor Watchdog on August 28, 2014. According to Chuck, if plan participants and their advisors understood correlation thoroughly, they would be up in arms. Diversification works only when the investment choices are uncorrelated.
“Most plans are chock full of investment choices that are highly correlated with either the broad equity or fixed income markets,” he says. “The high correlation between all of the cap (large, mid, small) and style (growth, value) based investment choices means that most participants don’t have diversified portfolios. Hopefully, financial advisors will help plan participants by including truly diversified allocation choices in plans they advise.”
by James Watkins
In my previous post, Fixing ERISA to Protect Against High Plan Fees, I discussed the failure of many 401(k)/404(c) plans to comply with ERISA’s fiduciary requirement to control a plan’s costs and avoid excessive fee. I also discussed the fact that many 401(k) plans attempt, unsuccessfully, to qualify as Section 404(c) plans in order to avoid liability for any losses that plan participants suffer in their plan account. Read the entire article here.