Forget investment education. Forget advice. Forget participant direction. Replace them all with the back-to-the-future notion that a new defined contribution plan consulting firm, Strategic Financial Concepts Inc., has adopted.
The Clarendon Hills, Ill., firm wants to be hired by plan sponsors willing to turn over management of the accounts of all participants in a defined contribution plan, acting as the plan's money manager and accepting fiduciary responsibility and liability.
Echoing the concept of "negative enrollment" that some 401(k) plan sponsors have adopted, no participant in a plan will have investment direction unless they specifically opt out of the program and elect to manage their own accounts.
Using optimization theory and incorporating a participant's expected Social Security and defined benefit plan benefits at retirement, the firm will manage the participant's account to meet retirement income expectations.
The concept is very similar to that used by several other defined contribution plan consulting firms, including EFR Advisors Inc., from which one of the founders of Strategic Financial Concepts, Tony Sabos, just left.
Strategic Financial Concepts is building a family of manager-of-managers mutual funds for the investment options. It also will construct the program using a plan's existing options.
Response has been good in the first month of marketing, although the company has yet to be hired, said Carl Londe, a principal and chief executive officer.
Mr. Londe said one reason firms such as his are needed because statistics from the Chicago-based Profit Sharing/401(k) Council of America suggest that only 10% of 401(k) plan assets are "appropriately invested."
Strategic Financial Concepts was formed by four Chicago-based consultants with a combined 65 years of consulting experience. Mr. Londe was a benefits attorney and senior consultant at Watson Wyatt Worldwide. Russ LeBarge was a senior consultant at Ennis, Knupp & Associates. Dan Gross was a principal and senior investment consultant at J.H. Ellwood & Associates Inc. Mr. Sabos was a senior consultant at EFR Advisors. All four are principals in the new venture.