Be Very Careful When You Call Your 401(k)

I can’t even remember how many Chicagoland company retirement plan participants have told me this same story.  I can tell you that it has been several over my 21 years in the financial services industry.  The story starts when I ask them why they are invested in a specific self-directed IRA account (“Why did you invest in that Mr. Jones?”).  Here we go.

When you change jobs, you naturally call the old company that provided your retirement plan or 401(k).  After all, this is the company that holds your retirement plan account and maybe the bulk of your life savings.  Once you identify yourself and explain you’re leaving the company, what is the option that you hear most from the company retirement plan provider?  Usually the young and eager “800#” customer service representative on the other end of the phone offers to send you out the information on opening a self-directed IRA at their firm.  The reason you are given is that “this is the option that most people in your situation take advantage of.”

Financial services firms take full advantage of the fact that the majority of individual company retirement plan participants don’t have the experience of managing old company retirement plan accounts that come from a job change or a retirement.  Many financial services firms also know that these same individual investors don’t always remember to ask about the fees and costs associated inside the new self-directed IRA.  Now here is where the real problem comes up:  when the customer service representative offers to send you ‘current investor education materials’ offered from their firm.  Based on what I have been told by multiple clients about their experiences with this, when they got the ‘educational materials’ what was included was a new application to open a self-directed IRA!

Please don’t ever confuse investor education with new account forms.  You also need to be very careful before you sign any documents sent to you by your old company retirement plan provider.  There is no reason that any individual company retirement plan participant should be the victim of misleading sales practices, bad investment products, or unsuitable investment advice in this day and age.

In my opinion, the vast majority of information provided by company retirement plan providers is misleading, confusing, and self-serving.  I don’t know if they are trying to confuse the process for the majority of individual investors, or are just unclear on the ethical responsibility our industry has to its customers.  For most investors, an old company retirement plan account is one of their largest financial assets.  They deserve full disclosure and fair treatment from any financial services firm or any advisor they come in contact with.

Cheers,

Ed Downey