401(k) Portability like College Coaches

The end of the college football season is the beginning of the college coaching carousel. The frequent movement of college football coaches and their staffs from one school to another, or to the pros, is the cause of consternation among players, students, administrators, and alums. Sorry Oregon! But by giving coaches the freedom to find the settings that they feel best complements their talents as leaders improves the quality of the game. Improving the quality of the game, in turn, leads to the generation of more fans and more enthusiasm from the current fans. So, as difficult as it is for boosters to stomach the loss of a favored coach, this movement of coaching talent has ultimately helped lead to the creation of a sporting juggernaut, modern college football.

In the 401(k) industry, I think we can help improve the quality of our product by allowing for 401ks assets to be portable to individual IRAs. As it is, you can only do so if you leave your current job. Marketwatch’s Chuck Jaffe does a good job talking about the benefits of doing so in a column posted this week. If this type of 401(k) portability were permitted while you still were employed at your plan sponsor, I think we would see an significant and swift improvement from the collective Registered Investment Advisor community. There are legions of RIAs that are terrific fiduciaries and bring incredible value to their clients, many of them are Employee Fiduciary clients, but one of the best ways to induce peak performance is to remove barriers that impede competition. Many RIAs get compensated by asset plan size and therefore any threat to asset plan size will result in a strong response from RIAs. Just imagine if we lived in a world where coaches were not allowed to switch schools and then that restriction was lifted. How would schools react? They’d probably invest a lot more time, money and focus into making their football programs outstanding!

When my wife retired, it did not take long for us to port her 401(k) that was invested in a big name family of mutual funds to an IRA at TD Ameritrade. We invested in low-cost index-based ETFs - total commissions of about $30 (thank you, no commission ETFs). We would have done that a long time ago if 401(k) portability to IRAs was permitted.

Staying frugal means choosing your own path. Stay independent my friends!