The primary argument in favor of index funds is their low cost and strong performance compared to actively managed funds. Index funds are designed to track the performance of a particular index, such as the S&P 500, and therefore require less active management by investment professionals. This means that index funds have lower management fees and operating expenses compared to actively managed funds.

Since index funds are designed to track the performance of an index, they tend to perform similarly to the index they are tracking. This means that investors can achieve broad market exposure and diversification with relatively low risk. In contrast, actively managed funds typically have higher fees and expenses due to the active management required to outperform the market, and research has shown that many actively managed funds do not outperform their benchmark index over the long-term.

Another pro argument in favor of index funds is their transparency. Since index funds track a specific index, investors can easily see what stocks or bonds the fund holds and can assess the risks and diversification of their portfolio. This transparency can help investors make informed investment decisions and monitor their portfolio more effectively.

Overall, the low cost, strong performance, and transparency of index funds make them a compelling investment option for many investors who are seeking broad market exposure and long-term growth of their investments.

The Silver Rule is a principle that states “do not do unto others what you would not have them do unto you.” A fiduciary who applies the Silver Rule would act in the best interests of the retirement plan participants and beneficiaries as if they were acting in their own interests. This means that the fiduciary would make decisions and take actions that they would want someone to take if they were the ones saving for retirement.

Applying the Silver Rule as a fiduciary to a retirement plan requires a duty of loyalty and prudence. The fiduciary must act with loyalty to the participants and beneficiaries, putting their interests ahead of any personal interests or conflicts of interest. The fiduciary must also act with prudence, taking care to make informed decisions and using professional expertise to evaluate investment options and risks.

In practice, applying the Silver Rule as a fiduciary to a retirement plan involves taking a holistic approach to plan design and management. This includes selecting investment options that are in the best interests of plan participants, monitoring the plan’s performance, and providing education and communication that is clear, transparent, and tailored to the needs of participants. By doing so, the fiduciary can help ensure that the retirement plan is designed and managed in a way that promotes the financial well-being of participants and beneficiaries.

• Review Fiduciary Duties and Responsibilities
• Assess Plan Success against Plan Purpose
• Review Plan Documents
• Review Plan Expenses (Explicit, Implicit, Possibility of Undisclosed)
• Review Plan Risks
• Review Investment Menu
• Review Conflicts of Interest

KEEP IT SIMPLE!

Nudge Your Employees

Study Behavioral Economics

Incorporate Behavioral Finance

The Financial Industry is highly regulated. A Fiduciary might conclude the industry is highly regulated as a result of inappropriate past industry actions. An Adviser might take advantage of its client using “special” or custom funds, proprietary benchmarks, undisclosed Implicit Fees (or legal kickbacks), or a complex investment structure.

Fiduciaries need full information to assess and then make decisions based on their assessment.

Regarding investments, if we assume that over a long time horizon, quality funds have similar returns, then there are three ways an Adviser helps Participants achieve prudent maximum investment results.

1. Minimize Emotional Investment Reactions
2. Allow only Prudent Explicit and Implicit Fees
3. Manage Plan Risk Exposure

KISC has no conflicts of interest to influence its Plan Structure recommendations, which minimize emotional investment reactions. KISC receives only Explicit, Asset Based Fees. The combination of this approach provides some Plan and Fiduciary protection.

Review KISC’s Sample Contract and ADV in the Documents tab of this site.

A 1% difference in annual investment returns over a 40 year time horizon might create a participant fund balance difference of 30%. The Fiduciary needs to understand that if the participant did not receive the assets, who did and further how were participant assets siphoned away?

One percent difference in returns may result from unknown or undisclosed Implicit Fees. How is a Fiduciary to know? Which adviser can the Fiduciary trust?

1. Study your adviser’s ADV. Do they indicate they accept fees other than Explicit (like Revenue Sharing)?
2. Study the organization’s corporate structure. A simple structure can’t hide sophisticated compensation schemes. Corporate owners may not have the same disclosure requirements. Such structures may indicate alternative forms of receiving undisclosed compensation.
3. A Fiduciary can protect their participants’ and Plan’s interest by requesting the adviser sign a Full Disclosure letter (review KISC’s in the Documents Tab of this site) indicating the adviser has fully disclosed all of the compensation related to the Plan to all of the adviser’s owners.

The Details are a Fiduciary’s responsibility!