If you ever want to know what the top mutual funds were 3-5 years ago, you can look at the mutual fund lineup of many 401(k) plans today.
While it may sound like a joke, it isn’t. Too many 401(k) plans don’t have a financial advisor or don’t have a competent financial advisor who helps them manage the fiduciary process in pruning the mutual funds that were yesterday’s winners.
I’ve been in this business long enough to remember when everyone wanted to be In Janus Twenty and every other Janus fund out there (which back in 1998-2000, pretty much had the same investments in each fund) as well as when American Funds was the big deal.
As anyone with some financial sense can tell you, very few actively managed funds stay on top forever. Actually, no actively managed stays on top forever, Heck, I remember when Legg Mason Value Trust beat the S&P 500 for about 15 years before coming down back to Earth pretty hard.
A great way to minimize liability is to develop an investment policy statement that dictates which mutual funds to hold, which mutual funds to fold, which mutual funds to walk away, and which mutual funds to run from. Not having such a policy statement or not following that statement can be a huge billboard for a participant to sue you.
That is why as a plan sponsor, it’s important to have financial advisors to guide through the process of selecting funds to make sure that yesterday’s top mutual funds are not in today’s fund lineup.
