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Fixing Your 401(k) the Matt Bradley Way – Episode 54

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If your office has a qualified retirement plan like a 401(k), chances are you’re paying fees you didn’t know existed and taking on liability you didn’t know you had. Matt Bradley and his company BenefitGuard help dentists fix their 401(k)s by lowering costs and offloading risk associated with compliance. In this Dentist Money™ interview, Matt explains where the fees are hiding, how to evaluate your existing plan, and the most common reasons employers get sued for mismanagement. He also lists the people you should have on your 401(k) team.


Show notes:

Podcast Transcript:

Speaker: Views on this program are opinions of dental industry experts and not necessarily those of dentist advisers. Opinions shared in the following interview do not constitute personal financial advice. This program is furnished by dentist advisors, a registered investment advisor. This is Dentist Money. Now here’s your host, Reese Harper.

Reese Harper: Welcome to the Dentist Money Show. I’m your host, Reese Harper and this is the place where we help dentists make smart financial decisions. This week’s interview is with a good friend of mine, Matt Bradley. His company, Benefit Guard, helps a lot of dentists manage their 401K plans and make sure they’re performing at a high level.
This is a nice follow up to last week show where Ryan and I talked about all the different type of retirement plan options. Benefit Guard is one of the TPAs, or third party administrators, we talked about and Matt has seen a lot of dentists make some costly mistakes that could have been avoided if they knew more about the rules and fees that go along with having a 401k plan. The questions I asked in this interview are basically the same questions I hear from dentists all the time. So if you’re like most of the clients we work with, this’ll be a good education for you.
As always, you can find Matt’s contact information in the show notes under the listen tab at While you’re there, you can book a free consultation with one of our advisors. We’re always happy to chat. Thanks for listening. Enjoy the show and carry on.
Matt Bradley of Benefit Guard. Thanks for coming in Matt. How are you doing today?

Matt Bradley: Great. Happy to be here.

Reese Harper: Man, I’ve been wanting to have you on the show here for a while, so I’m glad we finally made it happen. How about you tell everybody a little bit about what Benefit Guard does and why we brought you on today?

Matt Bradley: Yes, so Benefit Guard is trying to fix what’s broken with a 401k’s in the industry. We got into the business about five years ago and as we looked at the 401k model for small to medium sized businesses, we realized that there were a lot of issues and we jumped in to fix those issues and essentially, solved 401k problems for small, mid-sized companies.

Reese Harper: Seems easy enough.

Matt Bradley: Yeah, piece of cake.

Reese Harper: So tell us, what were some of the problems? I think a lot of people are probably thinking that. What are some of the problems that were broken that kind of were red flags for you as you looked at this problem?

Matt Bradley: Yeah, so I think one of the easiest ways to explain it is that you had the wrong people sitting in the wrong seats and a lot of scenarios. So 401ks are super complex and a lot of these small and mid-sized companies have an HR manager or a company executive signing and acting in fiduciary roles. As a result, they take on lots of risk in the plan and they end up doing a lot of fiduciary minutia throughout the year.
So they’re taking on a lot of risks, a lot of work and then, the costs were a big issue on the 401k plans as well. When companies or when the employees are looking at the plan, they think that they’re getting the plan at zero to no cost. Most of them don’t think they’re paying anything-

Reese Harper: Anything for it. Yeah.

Matt Bradley: Yeah and in reality, most of the costs are buried in the expense ratios of retail price, actively managed mutual funds. So everything that our employees are putting in, they’re seeing their accounts grow because they’re contributing. But a lot of that is getting eaten up by unnecessary fees.

Reese Harper: Okay. So we’ve got to back this up a little bit here because we just covered a lot of stuff. The first thing you said was we have people acting in a fiduciary role that… and taking on a lot of risks, but they’re an executive or an administrator. In this case, the dentist ends up setting up a 401k plan and taking on some liability that they didn’t really know they were taking on, right?

Matt Bradley: Yep. Exactly.

Reese Harper: So, when I’m a dentist and I just go and let’s say I just set up a 401k plan, what kind of liability is there? I mean, doesn’t the company that is investing my money, take that liability on, right? That’s what I would assume if I’m going online and just getting this thing done.

Matt Bradley: Yeah, yeah. That’s what you would assume and that’s what most people think. Unfortunately, if you go out and Google 401k lawsuit, you can read about all of these lawsuits that happen. Where a company gets sued by their employees for mismanagement of the 401k and the company says, “Hey, I thought that my provider, Fidelity or John Hancock or Transamerica or whoever it is, I thought my 401k provider was the one that was on the hook for this?”
When in reality, very few providers across the country are actually taking on fiduciary risk for the client. In 99% of the cases, it’s the company and in this case, the dentist and his entity that is signing and acting in the fiduciary roles on the plan.

Reese Harper: Okay. So when I’m a fiduciary, what are the roles? What are the different roles that a fiduciary has? If I set up a 401K plan, am I responsible for picking the investments? What risks do I have, I guess? What’s a fiduciary?

Matt Bradley: Yeah, what’s a fiduciary and a 401k plan? We could have an hour long discussion on this, but essentially, the easiest way to break it down, there are three primary fiduciary roles. So the first is the 3(16) plan administrator. That one we like to nickname the workhorse. The dentist is usually doing this. He reviews and signs the 5500s.

Reese Harper: Okay. So what’s a 5500?

Matt Bradley: A 5500 is the annual tax form that you’re required to submit to the Department of Labor and IRS on a 401K.

Reese Harper: Okay. So every year, I have to submit a tax return kind of for my plan?

Matt Bradley: Right. Exactly.

Reese Harper: The workhorse, the 3(16) guy, that job is to get that filed and do all the administrative stuff to make sure that it’s, call it compliant or that it passes the law the right way?

Matt Bradley: Yeah and you’re going to have a TPA, which stands for third party administer.

Reese Harper: This is already very confusing Matt.

Matt Bradley: I know. There’s so many acronyms.

Reese Harper: I’m confused. I just want to do it and not think about it. Okay.

Matt Bradley: Which is why we started our business.

Reese Harper: Okay. So we have the 3(16) guy?

Matt Bradley: Yep.

Reese Harper: That’s the workhorse, he does the administration. This is usually the same person in a dental office though, right?

Matt Bradley: Yeah, which is the crazy thing. You’re not a big company with a huge HR staff and someone who just oversees your 401k. You got someone already wearing a lot of hats, who’s now sitting in this role and gets a tax form with a bunch of data on it that they have no clue what it means, where it came from, if it’s correct. That’s usually the dentist or his chief administrator-

Reese Harper: Officer manager.

Matt Bradley: … office manager, and they end up signing a form and they have no clue-

Reese Harper: What it is or-

Matt Bradley: … of those numbers are correct.

Reese Harper: The numbers are right.

Matt Bradley: Even though you didn’t prepare the numbers, if there’s a problem with those numbers, you have to answer for it, not the person that prepared it.

Reese Harper: So, let’s go on the next thing. You started talking about a third party administrator. Those are usually the people that the dentist assumes are responsible for everything, right?

Matt Bradley: Correct.

Reese Harper: They’re the people that are kind of helping him get his forms put together, that hold the money. They do the accounting on the plan, right?

Matt Bradley: Yeah. Yeah. A third party administrator does mainly compliance. So to make sure your plan is in compliance.

Reese Harper: But in some cases, they’re not legally taking responsibility for that compliance.

Matt Bradley: They’re almost never fiduciaries.

Reese Harper: So that 3(16) kind of fiduciary, I’m still the guy that has that liability, even if I’ve hired a TPA and they’re preparing my forms for me and trying to get them ready for me?

Matt Bradley: Correct. Correct. Yeah and the crazy thing is that, a lot of dentists might say, “Oh, well, but come on Matt. Really, what are the chances that one of my employees is going to sue me?”

Reese Harper: Yeah, that’s what I’d say. It sounds like a scare tack.

Matt Bradley: Yeah. Yeah. But that’s not the only risk.

Reese Harper: Yeah, totally.

Matt Bradley: The risk of lawsuits. Like, the Department of Labor, their audits went up 40% last year. They hired, I don’t remember what the employee increased, but it was an abnormal amount of employees, so that they could audit more plans. What happens is that it’s not just the risk of a lawsuit, but it’s the risk of a government audit, a red flag popping up based on that administrative mistake that someone made, that you didn’t catch because you’re not a 401k expert, which is fine. You don’t need to be.

Reese Harper: It’s just more hassle and more time. As I think about it, for me, a lot of this is just… I mean, we try to talk to dentists a lot about maturing as managers or learning to outsource things that are defined tasks. Instead of just saying, “Well, I can, I can, I can.” Right?

Matt Bradley: Yep.

Reese Harper: Because it’s easy, I think, when you’re kind of the first phase of business ownership that we all go through, is we just want to do everything on our own so that we can learn it. It’s helpful to learn it, but it’s also helpful to kind of avoid the cost of outsourcing anything because you don’t have… Your collections in your first year are low, you’re trying to cover your debt and figure out if you’re even going to make any money. Those are the years where you kind of set the precedent though for what you’re going to do moving forward.
So you kind of end up taking on a lot of things that may not make sense to take on. So I guess, as I’m hearing a lot of this, I’m just thinking of all the time that it takes right to be that first part of the fiduciary, which is that workhorse kind of person. I’ve got to make sure the numbers are right. I have to get the form filed the right way. So the Department of Labor doesn’t raise a red flag and come talk to me about it.
On the 3(16) side though, there’s really not a lot of lawsuit or employee liability for preparation. Is that a common lawsuit or would it have more to do with investment risk? What do you think the more common reason is that employees get upset with their employers and maybe file lawsuits.

Matt Bradley: Yeah, an employee’s not going to know if something was wrong on the tax form.

Reese Harper: Administrative items, right?

Matt Bradley: Most of the time with employees, it’s, “Hey, I just realized that I’m paying all of these fees on my investments and that there’s companies that are, or individuals, that are being paid based on the investments that are being sold in the plan. So they see the fees coming out of their account and-

Reese Harper: And they feel like it’s not transparent, it’s not-

Matt Bradley: Exactly.

Reese Harper: … clear and they’re paying for something they didn’t really get to pick. They didn’t have any control over.

Matt Bradley: Exactly.

Reese Harper: So we have this three 16 administrative risk. We’ll call that, you said the workhorse. What’s the other fiduciary role that’s there?

Matt Bradley: Yeah, so the other key one or main one is what we call the 3(38) investment manager and the 3(38) investment manager is the fiduciary that’s responsible for selecting the fund lineup or the available investments for the employees. So what are the investments that employees can put their 401k savings in? You have to select those, you have to monitor them, you have to benchmark them, you have to replace them if you know they’re consistently not meeting those benchmarks.
95% of the clients, and especially the dentists that we talk to when we say, “Are you holding quarterly investment committee meetings? Do you have an investment policy statement? Are you benchmarking your funds to make sure that they’re in the sole interest of your employees?” Most of them laugh and say, “Yeah, we’re not doing any of that.”

Reese Harper: Yeah, of course.

Matt Bradley: But they’re not alone. I mean, this is 95% of small to mid-size businesses, don’t realize that it’s the company that signing and acting in those fiduciary roles.

Reese Harper: Yeah. A lot of people will have a 401k or now, when we say 401k okay, we’re not just talking about only 401k’s. There’s a lot of qualified plans or a lot of retirement plans that carry the same risk, right?

Matt Bradley: Correct. Yeah.

Reese Harper: So no matter how big or small your plan is, if it falls under ERISA these guidelines, if its a retirement type plan, for employees, then it falls into these same rules. So things like a simple IRA though, or a traditional IRA, those don’t fall under those rules.

Matt Bradley: Yeah. Correct. Yeah.

Reese Harper: What we’re talking about here though is that, if my 401k is being managed by somebody that’s, I think they were picking my investments. All right. I think they’re looking at my investments because they brought it to me, they sold me the plan and I thought that they were… had the other kind of… So the investment person that I’m talking to, in some cases, that 3(38) person that we’re talking about, they don’t have 3(38) liability, right?

Matt Bradley: Correct. Yeah. In the majority of cases, a 401k’s sold to you by a financial advisor and in very few cases, is that financial advisor, actually the 3(38) fiduciary? We do things a little differently. Because we sign and act in the fiduciary roles for the dentist, so we sign an act as a 3(16), we appoint a professional registered investment advisory firm to sign an act in that 3(38) role. That’s different from the way that other people do it. Because frankly, what a dentist is really good at, he’s good at fixing teeth. He’s also really good at keeping his clients happy, building relationships with family.
He’s really good at the operational functions. How many clients or patients can we get in here during my time while I’m in the office? And we want his staff to be able to focus on exactly that, the things that they’re good at, right? Having an investment policy statement, meeting with some folks internally to monitor.

Reese Harper: Yeah. It just doesn’t happen.

Matt Bradley: Yeah. Benchmarking funds and so, the advisors that we work with are actually signing and acting in that fiduciary role, taking on the risk and responsibility of building that fund lineup that’s in the best interest of your employees.

Reese Harper: So just the big picture here then, I’m a dentist, I get a 401k. I can either have those two risks, right? The 3(16) as the administrator, or I can have the 3(38) risk. I can carry both of those myself or I can offload those.

Matt Bradley: Correct.

Reese Harper: If I offload both of those, do I carry any liability still?

Matt Bradley: Yeah, as a plan sponsor, you can never offload all of your fiduciary risk. But what happens is when the Department of Labor and IRS come knocking because of an audit or a lawsuit or whatever it is or a red flag goes up and you have to correct something that went wrong, your plan is out of compliance. There’s a giant list of items that you’re responsible to have been doing and if you haven’t been doing those items, that’s where you’re going to get dinged.
Well, those items all roll up under one of those roles. So ultimately, when the Department of Labor and IRS come knocking on a Benefit Guard plan, we take care of those issues and we’re the ones they’re looking at, because in your plan document, we’re named as the fiduciary. So can you ever offload all of the risk as a plan sponsor? No.

Reese Harper: No, you own the business, you own the entity.

Matt Bradley: You’re sponsored. But 95% of it, you offload by putting someone in those roles.

Reese Harper: But even if I have someone already who I think is doing that, it’s possible that they could be picking my investments for me. Not really picking them, but I mean, I guess legally they’re not picking them, but it feels like they’re picking them, right?

Matt Bradley: Yeah. That’s what comes recommended when they sell you the plan.

Reese Harper: So, I could have someone that’s giving me my investments and the person I think is taking care of the administration and I could be paying them for that, but then, still carrying all the liability for those two roles that I thought I was paying them to take care of, right?

Matt Bradley: Yeah, 95% of plans. You just explained what’s happening. You carry all the risk. They do the work, some of the work, you pay them for it, but you carry all of the risks associated with their work.

Reese Harper: Yeah. When it comes down to it and I have an audit or I’ve got some data I have to verify or there’s a red flag that gets raised in the Department of Labor system, I’m still going to be the person that ends up dealing with this from a legal perspective.

Matt Bradley: Correct.

Reese Harper: If I do something accidentally wrong, I could get hung out to dry by the people that I’m paying because they are not going to take the fall for me on this stuff.

Matt Bradley: Absolutely. You go and look at the cases and ultimately, the company gets stuck holding the bag, even though the company wasn’t the one that made the mistakes. Which is, it’s not how it should work.

Reese Harper: Yeah. So I think that’s probably pretty eye-opening. You said that in the first one minute of your explanation and I’m sorry for this… The rest of us here, see, we’re a little slower with this stuff.

Matt Bradley: [crosstalk 00:17:12] No, there’s lot’s of acronyms. It’s complex.

Reese Harper: So, I think it’s really good to kind of… or just think about that. How is your plan set up? Meaning, who’s taking on that 3(16) administrative fiduciary role? And when we say 3(16), what numbers are we talking about here? Those are references to what? What’s a three and a six? What’s the 3(16)?

Matt Bradley: 3(16), it’s referencing a section of ERISA code.

Reese Harper: Okay, I just wanted to clarify.

Matt Bradley: And ERISA stands for the Employee Retirement Income Security Act.

Reese Harper: So there’s this act, right? And in it there’s a bunch of different numbers and codes. The 3(16) defines the responsibility of the fiduciary in the plan and the 3(38) is the investment one?

Matt Bradley: Correct.

Reese Harper: So 3(16) is the administrative.

Matt Bradley: Administrative.

Reese Harper: 3(38) is the investment one.

Matt Bradley: Yeah and there’s more, but those are the primary two.

Reese Harper: Okay. For those of you wondering if I know anything about this, okay, I do know a little bit about this, but I’m really trying to put myself in the shoes of the dentist. Okay because if it was just me and Matt talking about this, all right, we would jump past these basics. All right? So I hope that this has been helpful, at least for you guys to understand these main kind of areas of risk.
Let’s go to just a quick summary of what do you think are some practical takeaways that people can… How do I go and look at my plan and maybe figure out, what’s actually going on, right? Do I just go ask my TPA, my administrator? Do I ask my financial advisor? Will they know? Who do I go and ask and what do I bring to them to figure it out?

Matt Bradley: Yeah. So I think, if we separate the risk, the fiduciary roles and the cost into kind of two categories, the answer is different, right?

Reese Harper: Yeah.

Matt Bradley: So how do I understand if I’m signing and acting in the fiduciary roles? The first question is, do you sign the 5,500? Whoever’s signing the 5,500 is your 3(16) plan administrator and so, you’re taking on the risk and work associated with that role. The second question is, can I make changes to my fund lineup? If you can request and make changes to the fund lineup, then you’re likely the 3(38) investment manager. A lot of people don’t know whether or not they can do that or not. But you can also go into your plan document and see if it calls out who the 3(38) investment manager is. If it’s not and you can ask-

Reese Harper: So basically, my plan document, which if I can’t find it, how do I go find that?

Matt Bradley: Yeah. Sometimes you can find it online on the website. So if you go login in as a plan sponsor on the website, you can find your plan document or you can request your plan document from your TPA, which once again, is your third party administrator.

Reese Harper: So whoever I talk to most about my retirement plan is probably my TPA.

Matt Bradley: You can ask-

Reese Harper: I’ll ask them for my-

Matt Bradley: Plan document.

Reese Harper: … plan document and then, I can kind of read through there and see, or I can forward it to somebody like you or to some other provider that’s also this… taken on this 3(38) and 3(16) responsibility and have them analyze it for me too.

Matt Bradley: Yep. Absolutely.

Reese Harper: I could probably have the TPA tell me, if I could just get the document and have them walk it with me, right?

Matt Bradley: Yeah. Yeah.

Reese Harper: Okay. So do I do at this point, if I’m trying to analyze my fees? Well, now we’ve talked about the administrative and the fiduciary risks. Let’s talk about how fees map out. I want to know, what should I be paying for? What’s normal and how do fees get broken down?

Matt Bradley: Yeah. So the way that we break fees down, typically you have set up fees. Then you have administrative fees.

Reese Harper: Okay. So why do I pay a setup fee? What is that fee paying to set up, right?

Matt Bradley: Yes.

Reese Harper: Help me understand that.

Matt Bradley: So there’s a lot of work in setting up a plan. You have to design your plan, like what do you want to do for… Who do you want to be eligible? How do you want to structure your match? Do you want to allow profit sharing? Do you want to allow loans on your plan? Do you want to have a vesting schedule on anything the company gives to the employees to prolong employee longevity, you know?

Reese Harper: Yeah and there’s not just one type of plan either, right? There’s not just a 401k, right?

Matt Bradley: Nope.

Reese Harper: So there’s a lot of different types of plans.

Matt Bradley: A lot of different plan types and-

Reese Harper: Some can let me put more money in than others, right?

Matt Bradley: Yeah. What you’re paying for is for someone to spend the time with you to explain those things to you in plain English through the setup process. Like, “Well, Matt, what’s the benefit of a vesting schedule? What’s the benefit of allowing profit sharing?”

Reese Harper: Why would I want it this way?

Matt Bradley: Yeah. Why would I want it as a dentist and why would my employees want it? And how does it affect all of these different parties and whatever your plan goals are, right?

Reese Harper: Yeah.

Matt Bradley: So just that process of designing a plan takes time.

Reese Harper: Yeah, time. So that’s what my setup fee is for.

Matt Bradley: Yeah, that and preparing the plan documents and a number of other things.

Reese Harper: So what other fees should I expect to pay when I do a 401K?

Matt Bradley: Yeah, so generally, in the administrative fees, there’s a record keeper that’s being paid, who manages the data. Then there’s a TPA who’s being paid, who does the compliance. Typically, their fees are broken down into an annual base fee. So what do you pay as an annual base fee?
Generally, that’s between 1,000 and $3,000 a year. In a lot of cases, that’s the only fee the company pays. So like for us, it’s $1,500 a year. What does it cost to have a 401k plan for the company? $1,500 a year on an ongoing basis. But then usually, there are also per participant fees. So is there anything, an annual per participant fee and generally, those range between 30 and $75 per year, per participant. A lot of times participants are paying those fees.

Reese Harper: Okay, so what if I don’t have a fee, right? What if I didn’t pay a setup fee and I didn’t pay an annual base fee and I don’t think we pay any fees? What might be happening there, right?

Matt Bradley: Newsflash, nobody works for free, right?

Reese Harper: Uh-huh (affirmative).

Matt Bradley: So if you don’t think you’re paying any fees on your 401k plan, which in a lot of the surveys that go out, like 50 to 80% of companies and employees say, “We don’t pay anything for our 401k plan.”

Reese Harper: This guy’s a friend. Okay. It’s a friend from college, all right.

Matt Bradley: He’s just helping us out, right?

Reese Harper: Yeah. Okay.

Matt Bradley: Then where most of the fees, most of the time those fees are coming out of employee accounts. Usually what happens is most of the fees are buried in the cost of the investments. They come out of an employee’s account, either quarterly or before the end of day strike price or whatever. But those fees are coming out of employee’s accounts and a lot of times they don’t realize it.
Why? Because I’m contributing, so my balance is going up. My company is contributing, so my balance is going up and the market might even be doing well, so my balance is going up. So because my balance is going up so much, I see, “Hey it’s going positive.” But what they don’t realize is that a lot of times they’re paying one and a half, two and a half, 3.5% in fees.

Reese Harper: Yeah. So, I have this base fee that I have to pay to get the tax return filed. It helps keep my data compliant and does that 3(16) stuff that you were talking about?

Matt Bradley: Correct.

Reese Harper: That should be normal and that will probably range anywhere from 1,000 to $3,000 a year, depending on the provider and maybe-

Matt Bradley: The provider you’re using. Yep.

Reese Harper: … how easy they are to work with or how much I have to do. Then I have per participant fees and then, after that I have what fees?

Matt Bradley: So the next big category is investment fees.

Reese Harper: Okay and those aren’t paid a flat fee. I don’t pay $1,500 for those?

Matt Bradley: No.

Reese Harper: How do I pay for my investment fees?

Matt Bradley: So an investment fee is based on whatever investment is in your lineup. So if you go open up any type of a trading account where you’re going to buy stocks, bonds, or mutual funds, okay? Everything has a cost, right? So mostly in 401k what you see is mutual funds because there’s an amount of diversification that’s already built into a mutual fund. So every mutual fund has what’s called an expense ratio. That’s the operational costs associated with owning that fund. Well, the average expense ratio on a 401k plan in America is 1.3%

Reese Harper: Okay and I guess, most people probably don’t know what it should be. So tell me right now, like when I… I mean, what is a normal cost for a fund that is inexpensive or an expensive fund? What does it range from?

Matt Bradley: Yes. So you can get, what we call index funds and ETFs, as low as 0.05%. So instead of 1.3, 0.05. Do the fractional math, it’s a fraction of the percentage that people are paying. What people don’t realize is that they can have these low cost… You just saved 1% or 1.5% in fees for your employees. What that means over a 20 to 30 year period is a 20 to 30% increase on the size of their nest egg because of compound interest. So instead of an employee retiring with 1 million bucks in the bank, they’re retiring with 650 or 750,000. Well, that’s a big difference for-

Reese Harper: It’s huge. Yeah. This is where I’m going to take my dentist hat off a little bit. One of the things that I’ve seen too is that for different funds, the size of that fund, a lot of people are picking these index funds now inside of their plan. Sometimes they don’t realize that not all index funds are the same cost, right, either. I mean, the 0.05 you just mentioned, I know that Vanguards, let’s say S&P 500 index is one of the largest, the largest, S&P 500 index in the country and they just have a lot more money than other people have in that index fund, right?

Matt Bradley: Correct.

Reese Harper: So it brings the cost down even more because they can spread the cost of their building and their people and their computers across more investments. Where sometimes, other funds that do the same thing cost four to five times more, 10 times more just because they’re not as large, right?

Matt Bradley: Yep.

Reese Harper: And they’re trying to mimic the same investment strategy that that one index would.

Matt Bradley: Exactly.

Reese Harper: Now, just because it’s the cheapest, does that always mean it’s the best?

Matt Bradley: Absolutely not. I mean, cost isn’t the only factor. You have to factor in return as well. That’s the justification that you’re going to give. If a dentist or a company goes to their provider and says, “Why are we paying so much for our investments?” The first thing they’re going to say is, “Oh, for additional performance.”
But at the end of the day, when we do the math in 95% of cases, those additional fees dramatically affect performance. So the performance net of fees is almost better, almost always better, using a well diversified approach using lower cost funds. Now our average expense ratio in the fund lineups we use with the advisory groups we work with, isn’t 0.05.

Reese Harper: No. Yeah.

Matt Bradley: It’s like 0.19 or 0.2 but that’s much, much better than 1.3 or 1.4 right? The crazy thing is that usually there are a lot of providers that are being paid indirectly on the backing from those mutual funds.

Reese Harper: Meaning I pick a mutual fund and the person that sold it to me or the company that sold it to me gets paid because I bought that specific fund, right?

Matt Bradley: Exactly, exactly and that’s a conflict of interest. Anytime someone’s being paid based on the investment that they’re selling you, it’s a conflict. You want to pay them for the service that they’re providing. It’s a direct fee, as opposed to an indirect fee.

Reese Harper: Well, this is great man. I mean, this is a ton of insight on the both the fees of 401k and on the administrative or what we call fiduciary risks that someone takes on when they set up a plan. Do you have anything you want to close out with? Just major takeaways or anything additional you want to add about the fees and the fiduciary risk or just a broad takeaway? I just want to make sure you get a chance to say everything. I won’t cut you off here.

Matt Bradley: Yeah. I think we talked about the mistakes on the fiduciary side. We’ve talked about paying too much in fees on a 401k plan. We try to fix both of those problems, but the other big problem that we see is that there are a lot of dentists out there who have 401k plans, who aren’t taking advantage of the maximum tax savings. A lot of dentists don’t know that you can save tax free up to $59,000 a year into a 401k.

Reese Harper: Yeah. Totally.

Matt Bradley: If you multiply 60,000 times a 30% tax rate, you just saved 20 grand on your taxes while helping you prepare for retirement. Sometimes you can do that for your spouse as well, if they’re collecting a wage of some sort from the practice. So…

Reese Harper: It’s really important.

Matt Bradley: … it’s really, really important.

Reese Harper: Yeah. I won’t toot my own horn too much here, Matt, but I think that’s the reason that dentist advisors exists and it exists because dentists get really busy and they don’t look at all these details and sometimes, it’s easier just to have someone else make sure that you’re actually getting wealthier every year.

Matt Bradley: Absolutely.

Reese Harper: You got to keep up on your clinical competency. You’ve also got to keep up on your team building and hiring the right people, making sure that you’re profitable and that you’re collecting adequately and that you’re maximizing your chair time. I mean, there’s a lot to do. This is just one area that, in my opinion, it’s a very… when done properly, it’s not expensive. Just a very efficient way to buy back some time and redirect your time into something that’s more productive.
So anyway, man, that’s great insight. It’s a really interesting topic. We’ll, probably have to pick it up again as the laws tend to change on these things every year.

Matt Bradley: Always shifting.

Reese Harper: All right. Thanks Matt. Have a good one, man.

Matt Bradley: Take care.

Retirement Plans, Taxes

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