HEADQUARTERS: San Antonio, Texas





DEFAULT INVESTMENT: Vanguard Target Retirement 2030 Fund



Hiring a 3(21) fiduciary adviser got both R.L. Worth & Associates’ 401(k) plan sponsor and participants the help they needed.

The $2.6 million plan at the San Antonio commercial real estate developer previously had a broker/dealer (B/D)-based adviser, but Senior Vice President and Controller Teresa James felt the firm came up short in supplying compliance-related support.

“We definitely wanted help on the investments side, making sure we were monitoring those,” she says. She also wanted the plan’s 29 participants to receive more-individualized guidance about investments and retirement readiness. “I wanted them to get one-on-one help from an adviser, so they can be ready,” she says.

Cross Financial Services, also in San Antonio, started as the plan’s adviser a year ago January, and serves as a 3(21) nondiscretionary fiduciary at the sponsor and participant levels. It advises both the sponsor on which specific investments to include in the plan lineup and participants on their 401(k) investment selection. Since then, the plan has seen a 57% decrease in investment fees, and half of participants have met individually with a Cross adviser.

Investment Changes
Like many small-plan sponsors, R.L. Worth had no fiduciary-
governance process in place, recalls Dan Clark, the plan’s new adviser and director of retirement plans at Cross Financial Services. That became the first priority.

Clark helped R.L. Worth put together a six-member plan committee, taking staff members from several areas of the company to get a diversity of expertise and viewpoints. All plan fiduciaries accepted their fiduciary status in writing, and Clark completed the special training for committee members. To ensure the sponsor could meet the fiduciary standard of care, the committee implemented a formal process to evaluate and make decisions. It also established a process to document all decisions the committee made about the plan.

The committee then worked with the adviser to develop its investment criteria and, from those many hours of discussion, produced an investment policy statement (IPS). To have an IPS to work with “is huge for a plan,” Clark says.

“He helped us come up with the investment policy statement,” says James. “I had never heard of that before but realized it was a great idea.”

Moreover, Cross Financial Services benchmarked all plan fees and expenses. “We benchmarked investment costs, and we were able to say to the committee, ‘Compared with the national average, you guys are high,’” Clark says. The plan already had institutional share-class funds, he says, but some of the fund fees were higher than necessary.

The sponsor eliminated many of the expensive, actively managed options while introducing more passive funds. “We made the investment lineup simpler,” Clark says.

The plan reduced the number of options in some asset classes, and each equity category now has both an active and a passive option. For example, large-cap equity went from four active options to one and one passive option.

The sponsor also added four investment alternatives, each a new asset class for the plan: emerging-market equity, high-yield fixed income, international fixed income and long-term fixed income. And the plan, which does not automatically enroll employees, changed its asset-allocated fund option from actively managed, risk-based John Hancock Lifestyle Portfolios to a passive target-date option, Vanguard Target Retirement Funds.

Having the IPS focused the committee’s decisionmaking as the group evaluated potential investment changes, says Clint Worth Sr., a committee member and vice president of development at the firm. “It helped us because we basically opened it up to the universe of investment choices—and that universe is large,” he says. “By concentrating on what we felt was important for our participants, we were able to narrow those choices down. It was a very systematic way of doing it.”

The IPS helped the committee meet its fiduciary responsibilities in making investment changes, Worth says. “We felt that we needed to look at risk-adjusted returns,” he says. “And we wanted to concentrate on the net expense ratio, because in good times or bad times, that is what can ‘eat your lunch.’”

Participant Advice
To help participants make the right investment choices, R.L. Worth pays for Cross Financial Services to provide one-on-one meetings on-site, which Clark does about once a quarter. Some participants prefer speaking with him on the phone, while those who mainly work off-site may choose to stop by the Cross office for their meeting. The one-on-ones often last about 30 minutes.

When asked what participants want to talk about in those meetings, Clark replies: “Just, ‘What do I do?’ Literally, someone will say, ‘I know I need to save for my retirement. But how do I do that?’ What they are asking for is, ‘Help me pick the investments that are right for where I am in my life.’”

Before an initial meeting, Clark asks the participant to use the Riskalyze risk-alignment platform to take a quiz, which then produces a report an adviser can use to pinpoint that participant’s risk preference. “Riskalyze allows us to get a quantitative analysis of a participant’s risk tolerance,” he says, “as opposed to an old-fashioned questionnaire asking questions like, ‘If you won the lottery, what would you do with the money?’ Then we can tailor an asset allocation to what fits a participant’s level of risk tolerance the best.”

In their subsequent meeting, Clark goes on to inform the participant, “Based on the way you answered these questions, this is the level of risk you’re comfortable with.” From further discussion, he can determine whether the person feels comfortable with the risk-tolerance conclusion. “If [he does], I say, ‘This is our recommended asset allocation for you.’”

With 15 employees—half the staff—still yet to have a one-on-one, James says she may contact them to suggest these meetings be scheduled—and explain that R.L. Worth covers the cost. “My goal is not to be ‘nosy Teresa from HR [human resources],’ but I want to remind them we are paying for this, and we want employees to have an advisory meeting every year,” she says. “My goal is to have 100% of the employees involved in annual one-on-one advisory meetings.”

James has seen employees make progress with their deferrals, along with their investments, from the meetings, which gave them a better sense of their retirement preparedness. She remembers with particular pride an older employee who increased her deferral to 15% after having a one-on-one meeting. “That’s what I’m thrilled about: people being proactive instead of reactive,” James says. “We want them to know, ‘Retirement is within your realm of control—if you are willing to have deferred gratification, you can get where you need to be.’” —Judy Ward

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