No. of Recommendations: 0
Merrill Lynch 401k programs. (More than you want to know)

1. M-L's own in-house funds are such poor performers they typically "juice" the programs with funds from other fund families. This is an open admission that M-L has problems. They try to make it into a marketing advantage, when it is really an admission they can't keep a "stable" of funds in which people want to invest.

2. M-L may offer you an asset allocation program (they may call it "Goal Manager" or something similar). It is VERY appealing to many less sophisticated investors because it provides:
(1) AT least three levels of risk,
(3) Automatic investment according to the risk,and
(2) Automatic rebalancing each quarter.

What a deal!

Execpt they will "stack the deck" AGAINST you. All the funds in the "goal manager" will be HIGH FEE funds. Check the Morningstar (and others) for for 12b-1 fees, "Management Fee," and Expense Ratio. My guess is that you will find fees above 1% and more likely in the 1.5 to 2.0 range, even for mediocre performing funds.

GOAL MANAGER RIP-OFF: This program is SO popular they expect about 70% of employees to select it, which guarantees a rake off of high fees from these folks who like the sound of an "automatic" program. They do not look at, nor understand, the HUGE negative impact of high fees over time.

One percent additional each year doesn't sound like much, but this is LONG TERM program, and over the "long term" one percent additional fees is a KILLER.

3. It sounds like your company may be using a "third party" administrator (or is FHS your employer?) to suck even more money out of the program. There are a lot of different folks in this game, all with their hands out. If you are "lucky" M-L will have all three roles, investments, record keeping and compliance, and Trustee or fiduciary. Of course you may never know.

4. Each "service" which M-L provides must be paid for by somebody. Want access to the Interent to check balances? There is an extra fee (presumably paid by your employer). The services come as a cafeteria selection to you employer, who may or may not elect the services you would like.

5. IMHO, M-L uses questionalbe means to gain 401k accounts from [especially] smaller businesses. In a small business, the person who has the authority to pick M-L will be either VERY UNINFORMED, or will be THE OWNER.

- No informed person watching out for the interests of employees would sign up with M-L.

- However, the OWNER may have a lot to gain because of "arrangements" with M-L for access to IPO's or the promise of "waived" fees for a year or two.

There used to be an excellent site within AOL on "401K abuse." You might do a net search for that site.

IF the time comes to convert from a 401k to an IRA, M-L will claim any "connection" in their phone calls which they think will work to have you "identify" with M-L and have you keep your IRA at M-L (right!)

6. Obviously you are "stuck" with this program. My advice would be:
- Despite my negative comments, invest AT LEAST to the level to capture any "employer matching." This is a MUST.
- Then invest in a ROTH IRA (assuming you are under 50)
- Then MAX out the remaining amount in your 401k.
- Make sure there is a S&P 500 Index fund and at least one Large Cap Fund available. You can make these two funds (assuming reasonable fees) the Cornerstone of your overall investment portfolio. If you don't have an index fund, petition your employer to add one.

- Check the Expense Ration of EACH fund . . . and try to balance off the return against the expenses.

- Probably AVOID the "Goal Manager" unless you do not have the experience or discipline not to be constantly switching funds. The asset manager is a good concept, but they know its appeal, and charge excessively for it.

- Remember this: YOU are ***NOT*** Merrills "customer."

- The REAL customer is your company, since the company is paying the Administrative Costs. Your leverage with M-L is minimal and is mostly with the U.S. Dept. of Labor.

- M-L only has to keep your employer happy, NOT you!
If your owner is getting his/her share of IPO stock from M-L before it hits the streets, you will take what you are given. And like it.

Good luck . . and MAX out the 401k!


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