Researchers once looked at some data to try to figure out why many poor 401(k) investment choices linger on fund lineups. The researchers identified one fairly clear explanation: a sub-par fund is much more likely to stay on the menu if it’s managed by the mutual-fund company that’s helping administering the plan.
While it’s very easy to point to the Fidelitys and American Funds of the world for blame, the fact is that regardless of whether you are dealing with a bundled or unbundled product, poor investment options are dependent on the work or lack thereof of the financial advisors and/or the plan fiduciaries you hired as a plan sponsor.
My old law firm was using an open architecture platform where they had a fund lineup that hadn’t changed for 10 years. The culprit? The fact that they never bothered to hire a financial advisor until I told them it was a good idea. The fact that they didn’t hire any of the ones I recommended, that’s another story.
There are too many plan sponsors who don’t have a financial advisor and there are too many financial advisors who don’t do enough of a credible job to merit the fee they are getting.
Perhaps plans on mutual fund company platforms are more likely to have stinky fund lineups, but it’s still dependent on a plan sponsor and/or financial advisor not doing their job.