Target Date Funds, SECURE 2.0 & ESG in 401(k)s

[0:00] JD: I've never had more pressure on me in my life than when my kids are in Little League and you pitch to them and they only. At the time our rules was I think they only got like six pitches. And then, like, you throw a shitty one, then they'd hit a foul, then you'd throw in, they'd take it, and you'd get down to the end. You're like, I got one pitch left for this kid to get a hit, and if I don't throw it over the plate, I'm the biggest dick on the planet. A lot of pressure. [0:26] Chad: It's tough. All right, we ready? [0:32] JD: I think so. You ready, Brandon? [0:34] Chad: We're low tonight. [0:35] JD: Kick it off. Hey, what's up, everybody? Welcome to the show. Broskis and bro. What do you call a female bro? What's a female bro? Bro. I don't know, bro. She's Daniel says bra. Chicks. [1:17] Chad: It's not a bro. [1:18] JD: Yeah, it's a sis. What up, bros and sisters? Welcome to the shittiest webinar on Zoom, the Retireholics. We're happy that you're here. We've got some fun stuff to talk about today, but before we do, I'm going to sing a song to y'. [1:37] John Faustino: All. [1:37] JD: Yep, it's song week. [1:38] Chad: Warm up those vocal cords. [1:40] JD: But before I sing the song, I must get into character. So bear with me one second while Bran kind of gets ready to. Yes, Let me get into character. [1:54] Chad: Geez, it's a grunge song. Chad, I'm surprised you can handle these, man. It makes me so awkward. Dude, [2:05] JD: One second. No. Ah, geez. I just screwed up. Hang on. Here we go. [2:14] Chad: Okay. [2:15] John Faustino: Oh, geez. [2:16] Chad: It's like co eating candy right here. [2:18] JD: Hang on, hang on. [2:19] Chad: Let me. [2:20] JD: Got a lot of stuff going on here. Okay. Disturbing, says Craig. [2:27] Chad: That's terrifying. [2:28] JD: Brandon, I'm ready when you are. Go ahead, start the music. Whenever I'm reviewing funds, 360 puts you in control. Whether CITs or mutual funds, your sponsors always hit their goals. And when they need an ips. Fi, 360 brings the tools we need. And the conferences are always the best. The benchmarking will leave you very pleased. However far away you can always log in. Fiduciaries say yay. Their work is never bargain. And Faustino says if you sign up today, he will always love you. Always love you. [4:24] John Faustino: Wow. Oh, geez. Oh, my Loving beyond. [4:28] JD: Yeah. Took a lot of work. [4:31] Chad: For those that take you to write these songs and everything you do. Or is this Brandon? [4:37] JD: Yeah. Better part of the week. Sorry for anyone who emailed me and I couldn't get back to you. I was busy writing a Cure song. [4:45] Chad: You know, jd, for those that don't know you, I have to imagine if someone said cocaine's a bad drug, that they have to think you just smoke a lot of weed and go surf and come up with this stuff. That has to be the general premise for most people. Thoughts? [4:59] JD: Even though my appearance would tell you that I do not smoke weed, I'm very anti drugs. Jeez, kids off drugs. Okay, you know what? Before I do a little housekeeping, Justin, who the hell is with us today? Can you intro our guests? And you out there in the audience, make sure you rate Justin's intro on. Hold on, can we. [5:22] Chad: Can we rate JD's song first? That's a good point. I like that. That's a 15 out of 10 right there, man. Holy. That was stellar. That was. That was impressive. And it's classic fashion. I have to follow jd, so mine's gonna just tank here. Not to mention, John, you don't have anything about you online except for a little blurb. You make this job really hard. So one thing I get to do [5:44] John Faustino: on the show, I don't have a Wikipedia page like Kitsis does. [5:48] JD: Oh, he watched that episode. [5:50] Chad: Yeah, no one's ever going to top that. But Anyway, so today, Mr. John Faustino, he spent 14 years at Morningstar. He's the current head of Fi360. He is, unfortunately, a Bears fan. Likes the White Sox. He has more degrees than Sinead o', Connor, the Proclaimers, and who else we got on there than the one headed Wonders? Oh, Vanilla Ice combined, which is just astounding to me. How long did it take you to accumulate those degrees, by the way? [6:27] John Faustino: Four years for undergrad and then five years for the other three. So nine years. [6:35] Chad: So you're a doctor. [6:37] John Faustino: I'm not a doctor. [6:39] Chad: Geez. For anyone curious, he's got a B.S. in Finance, Ms. In Decisions or Decision Sciences, MBA from University of Chicago's Booth School of Business, and an msit, which I had no clue was something from Northwestern University. Anyways, ladies and gentlemen, John Faustino. [6:57] John Faustino: Thank you for having me. [6:58] JD: The clap, John, is for you, not for Justin's intro. It was kind of subpar. [7:03] Chad: Horrible. [7:05] JD: Still a little bit of housekeeping. 6.8 from Greg. Go ahead, put it in there, people. 0 to 10 for Justin. Don't worry, he's got thick skin. He can handle it. Housekeeping. We're going to play chat bar champion for sure. So Mr. Faustino remember, you will vote someone into the semifinals. So pay attention to that chat bar. Whoever's the funniest, whoever's the wittiest, whoever just, you know, catches your fancy in there can earn your vote. And then you out there in the audience, yep, I'm talking to you. You'll vote for the winner. Acro, sin, syn. We're playing it today. So John, you cannot say any acronyms or any initialism. [7:42] Chad: You can jd you can say those. True? [7:45] JD: Oh sure. [7:46] Chad: You just have to drink when you do. [7:47] JD: But if you do, you must drink from your penalty drink. I've got a little vodka here. We're going to play a new game today, so I'm kind of excited about that. [7:56] Chad: Not the one from last week, right, Brandon? [7:58] JD: I put some work into a new little fun game that we'll break it up. So we'll do that. But let's get right to it, jump right into some headlines. There was an article, I'm always stealing from Nevin Adams. There was a recent article titled, titled Our target Date Funds off Target. And taking from his article here. You don't like his title? Are you giving him shit, Mark? Is that what you're doing? [8:28] Chad: I am. I would give that a 2 out of 10. [8:32] JD: The chairpersons of two of the leading retirement plan committees in Congress are calling for a review of target date funds. And what they want to review is the asset allocation at retirement. And they want to review the underlying investments, you know, in the target date funds themselves and things like private equity and hedge funds as little sleeves inside target dates. So this assessment of it kind of flies in the face of this whole two versus through concept. It sounds like they want to, in a sense, see if there's some need to regulate. I think it's because participants don't understand target day funds. So let me ask you guys some questions and I'll go right to our guests. First, is it okay for not all target date funds to be the same or should they be something more specific, more monitored or regulated that the participants can then count on? What are your thoughts on this, John? [9:37] John Faustino: I think it is okay for target date funds to differ in terms of their asset allocation. Ideally, the advisor is going to look at the demographics characteristics of the folks that are in the plan and then decide what fits that specific audience. This whole concept just screams guaranteed income to me. When you look at the concerns about too much equity exposure or private equity exposure and people having sequence of risk issues as soon as they retire, the real issue is that there's not enough Certainty for retirees. And I think this is just a byproduct of that. [10:17] JD: That's interesting. I hadn't thought about that. It's interesting connecting the dots to guaranteed income to solve that. Chad, when we talk about asset allocation or I should say your equity or your stock to bonds and cash ratios at retirement, I think that's where this government is leading, right? It's like, oh geez, some of these target date funds have too much equity exposure at retirement. The participants aren't aware of that. Where do you fall in that camp and where do you think a lot of advisors fall in that camp? Because I've seen Kitsa say kind of counter culture to the fact that he likes to see people in retirement, early in retirement having very, very conservative portfolios and then ramping up their equity exposure as they get a little deeper into retirement. And this has something to do with like sequential returns. Right. And kind of getting hit big in the beginning. But anyways, I mean, tell me how you feel about this. [11:17] Chad: I think it's on the committee to determine which target date suites and the way in which they're established fit for their team. I think that we would all agree that the vast majority of plans that we're involved with or have touched in our lifetimes don't spend much time at all, if any, deciphering which target date suite, which fund family meets the type of needs of their participants. They're taking whatever the internal gives them or what their scoring system gives them or what the performance proprietary requirements is with that record keeper. So I do, I do think that TDF's damn need to be reviewed deeper. I'm not as worried about whether it's to or through an equity exposures retirement as much as I am making sure that there's a review process as to the actual underlying investments and whether or not that fund family is prudent for the type of demographic that business has. [12:10] JD: What? Mark, you're always good to talk about the general person. So what is that? What does that mean? Like the. You like you're in touch with the people, bro, you're in touch with the people, the regular. The regular Joe and Sally. [12:25] Chad: Right? And you are not. [12:27] JD: Right? Yes. Do you think participants think that target date funds are just safe and that they're shocked when they find out that there's this equity exposure? And whose fault is that? That the participants think it's safe is the advisor's fault? The record keeper, the mutual fund, the participant themselves. [12:47] Chad: Well, to answer your question, yeah, I think the participants absolutely believe that that is a safe investment choice and they can be very secure in knowing when they're putting dollars in that over time, as it grows, that they don't have to do anything that, that, that it's going to be managed properly for them, but they're not looking into the details and who's responsible for that. I think I would echo Chad's sentiment there, saying it's, it's a combination of both the advisor as well as the committee to determine, first off, you know, what are the demographics of the folks that you employ and what's our methodology to determine which target date fund, out of the plethora that are available, is the best suited for the people we have? J.D. you pose that question to Mark a little differently, and it has me thinking a bit about the equity exposure at retirement. There are a couple providers that offer both to and through methodologies, and they put them in the core menu. But let's be honest with ourselves. Do we think that 5% of participants would actually understand the difference if educated on it? I think that would be generous, saying 5% of participants would be able to decipher between the two and understand the implications. And so if we're using this as a, as a default, most of the time, we as a committee level, as professionals in this space, need to determine what is right for the majority of our team. [14:21] JD: Yeah. [14:21] Chad: And that's the solution that's in there. Can I ask the business owner on this, on this panel here? Well, Chad, minus you for a moment. JD what have you done? I know we have a 401k plan that I can't put money into because for some reason, I guess highly compensated employees aren't eligible for it, but not even close to that threshold. But what have you done in terms of selecting the targeted funds that are available? [14:54] JD: I did whatever our advisor told us to do, and it was a stupid move. Don't we still have the Fidelity Freedom funds in there, Chad? [15:01] Chad: No, we moved to. We moved. Yeah. [15:05] JD: Yeah. So I, I follow that. I follow the advisor and I'm not doing this plug for Faustino. What does he use? Chad, what tool does our advisor use to review John, what is. Not to put you on the spot here with FY360, but. And the boys know the program more than I do. But how does FY360 approach target date funds? And do you compare target Date funds to other target date funds? Do you help advisors in that space? [15:32] John Faustino: We do. So all of our comparisons are pure percentile rankings against their respective Morningstar Categories. So they have different vintage categories for target date funds. So we'll do it at the individual vintage level and then you can look at the average for the series or you can asset weight the average for the series for your given plan to see how 1, 1, 1 vintage works to another. But you know, there are, you know, there's tools out there that do more comprehensive reviews on target date funds. And I would suggest that our score alone is certainly not enough to make your target fund selection, your target fund series selection. Maybe it's one component, but you know, like folks are mentioning the demographics of the plan and whether or not they have any kind of defined benefit. You know, you look at the industry that they're in, if it's a high tech kind of highly fluctuated thing, you're going to want to be more conservative. So with target date funds, it's, you know, some kind of score plus many other factors a lot different than individual sleeves. [16:41] JD: Understood, Chad. And then John, if you've got some thoughts on this, this Congress taking a look at this, doing this review, what do you think will come from this? They're going to dig, stick their nose into it, try to learn about it. What's going to come from it? Are they going to come out and be like, hey, you guys, all targeted funds have to follow, stay within these bumpers or within these lines. I mean, what do you think might come from. [17:09] Chad: No, I don't think they'll go that rash. I mean, if they did, I think our industry would come up with another vehicle. I mean, we're pushing towards CIT is hard. We'd find a way to damn classify things differently so it didn't fall into those categories. I don't know, J.D. i'd have to think on that one a little bit off the top of my head. I don't think much is going to come out of that because there's far more pressing issues and I think most of their focus has been less on the back end. You know, what do we call it, the decumulation phase. And it's been more focused on the growth phase and how they're going to earn revenue from us. Hence state ran plans that are Roth up front. So I don't know. I don't think much is going to [17:50] JD: come from it, John. I mean, what do you think government's going to come up with? Their goal is to protect the participant, right? [17:58] John Faustino: Yeah, I agree. I don't think much is going to come of it. And if you look at the Pension Protection act and how they define QDIAs. I believe you have to have three or more underlying investments. [18:08] Chad: You're doing them so good. You even did Protection Act. That was good job, John. [18:16] JD: You can always finish your thought too. You can always finish your thought and save up your penalty, but go on. [18:21] John Faustino: Okay, so the way that they classify qualified default investment alternatives, you have to have three, three unique investments in there. Broad guidance, relying on the professionals to decide you know what makes sense. I would be concerned with the government mandating certain asset allocations. Not all equities are the same. And I brought up guaranteed income before. When you look at what happened before the Pension Protection act, we had a lot of people that were defaulting into money market funds. You work for 30 years and you get $100,000 in a money market account. I saw that 25 years ago. And that put in my head look out for that missed opportunity cost. If you're too conservative. I think the Pension Protection act and target date funds and other qualified default investment alternatives, great move forward. And it's like the pendulum kind of going back and forth. And I do feel that a lot of these concerns are around that base level of spending that the average retiree needs. And with Social Security less on an inflation adjusted basis than it was 20 years ago and longevity risk and all the things we talk about, less defined benefit plans, we need some guarantees. We need some guarantees in the US So I believe ultimately that's what's going to make Congress and the regulators happier with John. [19:49] JD: John, do you did you did Woolney. Did your old buddy Woolney hit you up and ask for some. You have some investment money in income America. Behind the scenes, you're pushing this narrative pretty hard. [20:02] John Faustino: I was big on guaranteed income before Matt left me Woolen. [20:06] Chad: He's here. [20:07] JD: He's here. [20:10] John Faustino: I do believe that's what's driving it. I believe that's what's driving it. Is that need. I mean, why is it a concern that things could go down in the sequence of risk and everything? It's because then people could end up not being able, you know, make their monthly nut. That's. That's the concern. [20:24] JD: Yeah, I like that you guaranteed income. Go ahead, Justin. [20:28] Chad: What about those record keepers, you know, in the smaller market who have proprietary requirements and maybe their target A funds don't quite meet the snuff of what, you know, they should be doing. You know, what do you. What about the participants in that scenario? [20:41] JD: Let me triple up on that. Justin. That's a great comment in that. How about just you're in A record keeping platform, even if it's not proprietary, necessarily. But you only have, you know, two options or three options. Like, how can you possibly do. What Chad was talking about, What John's talk about is like, do your due diligence, find the right target date fund that fits for your people and your demographic. There's a lot of record keepers out there where you don't have a ton of choice. And yeah, your hand, your hands are. Your hands are tied. Come on, Chad, run to the defense of the recorders now. Hold on, Chad. [21:16] John Faustino: Go. [21:16] JD: No, no, no. [21:17] Chad: I'm not going to defend record cures, but I will say, could, could Congress step in and tell these record keepers and this might not true, but you, you cannot offer just proprietary that. You have to open up this, you know, world of, of target date funds to all Again, I would. I think that's overstepping a little bit, [21:39] JD: but I don't think Congress could. But Schlichter could come and sue you for that. And if you better be able to prove that, you know, why you chose those proprietary funds. Yeah, that's cool. I want to get to a couple different topics. So that was cool. We unpacked that. I shouldn't say unpack. That's such a cheesy corporate word these days. And I've been abusing it. Yeah, we got into that subject. [21:59] John Faustino: That's cool. [22:00] JD: Let's move on. It seems to me that we're in for a ton of regulatory changes with the change in presidency, administration, and with Secure Act 2.0 and things that I'm hearing about and articles I'm reading. Oh, shoot. Okay. [22:20] Chad: Good call. [22:23] JD: There's a. There's. These are exciting times to be an advisor, to be a third party administrator, to be just in the industry, because I think we're going to get a lot of stuff thrown at us. And anytime there's a bunch of stuff coming at you, especially when I think about an advisor, it's an opportunity for you to reconfigure your business model, add things to your. To your value that you provide to your clients and really kind of up your success levels. So pay attention to these changes and really dig in and see how you can maybe take advantage of them. What I'd like to do over the next few weeks is kind of dive into secure 2.0. Damn it. That's two. Okay. And what is it? Setting up every phone for fucking retirement. I don't even know what that stands for. But what I'd like to do is each week, maybe dive into A detailed section of it instead of just doing a surface level overview. [23:17] Chad: So today, hey jd in the future, maybe like let us know that that's your plan before a week so that like we could look into what topics you might want to cover. [23:27] JD: I want your. I want your. This is one of those shows where I want your off the cuff thoughts. Okay. And so I want to talk about automatic enrollment. So part of the act is implementing mandatory automatic enrollment for plans at a 3% or at least 3% start and then 1% annual increases capped to 10%. And it's coming in the future. The question, and I'll go straight to John since he's the guest. Most in the industry would say that this is a phenomenal thing, right? Is there a downside to this? Is there something that we should be worried about in terms of forcing everyone to have automatic enrollment? [24:11] John Faustino: I see very little downside in it. I don't know if you all are familiar with Dick Thaler University Chicago guy. He wrote this book Nudge and he did a lot of his research on retirement plans in the US and outside the US And I believe that these automatic enrollments, defaulting people into contribution increases and investments that are, that are likely in their best interest is the way to go. So force people to work hard to get out of that as opposed to forcing them to work hard to find the right allocation to manage their money. [24:44] JD: Chad, where could this go wrong? Anywhere. [24:47] Chad: I was not listening at all to what you were saying. He saw crypto in the chat. [24:53] JD: He's like, oh yeah, yeah, he got into the crypto. If we mandate automatic enrollment and then automatic increases, how do you think the, the six person auto body shop or the, you know, 12 person flower shop where the owner and proprietor runs the payroll and, and runs it on a spreadsheet. Like is it possible that people are going to fuck this up and not. And There we go, [25:24] Chad: Mr. Negative. [25:26] JD: What? [25:27] Chad: I'm not getting on that horse. I'm not getting on that horse. [25:31] JD: It's, it's a week. [25:32] Chad: It was like employer plan. [25:35] JD: It's a weekly thing that we sit here and complain about people who can't do their job right. [25:41] Chad: Hey, by the way, grow up and do it. [25:43] JD: Okay? It's, it's a, it's a requirement. Love it. [25:48] Chad: I mean, you own an Autobot argue. It's like getting insurance with you. That's not their job. They're being forced into offering a state ran plan. They don't want it. He didn't say their job is to run their business. Auto escalation in the state run plans. That's not what we're talking about. [26:08] JD: Dude, I love this. I love. [26:11] Chad: Okay, fine, fine. Go on. [26:15] JD: I'm kind of say, say the same [26:17] Chad: thing we always do. It is a good thing. It's like bridging the coverage gap. We're trying to do the right thing but we're going to be dragging down the small business while we do it is what we're doing. [26:28] JD: And I'm kind of a, I'm of two minds. Like I, you know, I agree with Mark in the sense that I feel like hey, if you run a business you have responsibilities, you know, you know you got to get payroll done and get the money into your employees accounts. You know you've got to pay the government, you know, you've got to pay the rent or the lease on your building. Like there's things that you have to do and these, this is just one of those things that you would have to do. You got to pay your taxes, you got to you know, work with your accountant. So you can do those types of things. [26:56] Chad: However, be a realist though. [26:58] JD: But let's be a realist. [26:59] Chad: How much time do you think it will take? [27:01] JD: Let's be a realist. Go Justin. [27:05] Chad: It's not about the time. They don't understand. [27:07] JD: Okay. [27:09] Chad: And that's our jobs to educate them and make sure they're doing it. [27:11] JD: That's what I was going to ask. [27:12] Chad: Why you use technology then that's your battle. And I agree. [27:15] JD: Justin. I'll go to Justin. Is there an opportunity for advisors or third party administrators or record keepers through tech to help these clients and should advisors or look to see like hey how, how will I be able to help these small businesses deal with this? Do you see that as an opportunity, Justin? [27:38] Chad: Yeah, definitely an opportunity. I also, and Chad, I don't disagree with you either. It is, there is a hurdle we have to get over and not only on the plan sponsor side, but there'll be a lot of advisors who might reject against that too because not everyone is a top quality advisor. So yeah, there are areas that there will be pitfalls. But yeah, for those who actually focus in this industry, tons of opportunity and to drive your value and show why you may charge what you charge if you're not trying to drive your pricing to the bottom. Stuff like that huge opportunity and not to mention it's incredible for the participants, you know, and the growth of retirement across the, you know, the nation. We, we, we met with a, a pooled plan provider. What's the term you like JD P3 P3 met with. [28:29] JD: It doesn't count. It doesn't count. [28:31] Chad: It does not. Does not. And Guy mentioned it up in the chat. If you have payroll integration or if we force payroll integration, which is why Mark goes. Here goes Chad again. Because that's what I've been trying to preach for a decade plus now is that every single plan should have proper payroll integration. And that's. This is less of an issue. Not why I'm complaining by the way. This is less of an issue. If we can get there, it's never going to happen. But I feel like if we can force, if we can force all the data all the time for every single plan and we can leverage technology to track eligibility, to track the auto escalation, to notify when people do make an election change, they're no longer in the auto features, then this could work. Otherwise we're going to continue to fail. And that's just the reality of it. [29:17] JD: But here's, here's the, I'll be the super like pessimist here is if we're talking about the micro market and that flower shop that I'm talking about, to do that you need an expert involved. And so let's say the advisor gets involved to help. It's time and time costs money, which means that advisor is going to have to charge that client to help them or even if it's a third party administrator, I mean in real business and logics it's going to take time and time is going to take money. And it's fine, Guy, it can be the tpa. I really don't care who does it. But if you're going to add that extra service, it's going to cost money. Oh, what did I do? [29:54] Chad: Administrator. [29:54] JD: And those that flower shop, it doesn't want to pay for it or can't pay for it. So we're in a bit of a conundrum. [30:00] John Faustino: Don't you look at the totality though? So maybe some firms are going to have a tough time implementing it. But you think about the greater good to participants when you're making policy decisions like this. And I agree that there's opportunities. We're seeing a lot of advisors charge more for their services. So everyone's talking about fee compression. The advisors that we surveyed in 2018 charged more than they charged in 2013 for plans $10 million and under, they provided more services. But you know, I think this is an opportunity for, you know, good fiduciary advisors and TPAs and the like. To step in and provide a real service. [30:43] JD: Yeah, yeah, that's you. No, you're right, you're right, you're right. And I, and I do, I do think that Chad, the science brain In Chad is 100% correct. I just know that to get integration really means that you need someone there that understands it and is able to audit it and check it and maybe even ongoingly audit it to make sure that you're. Because just setting up 360 integration, everyone thinks that solves it. It's, it's riddled with errors typically. And so someone's got to actually get in there, roll up their sleeves and look at what data is coming and in what form. And this has to do with definition of comp. This has to do with ownership. This has to do with lots of things that always get fucked up. But so it's not as easy as a lot of advisors, I'm talking to you out there, think you're like, oh, just get it set up with a payroll. That's the voice you use. You're like, I got to set up with the payroll. And it'll be a simple thing and the data will come over. Bullshit. That's not how it works. And so you. [31:38] Chad: Which is also kind of astounding to me that in this day and age we don't have the technology or hasn't been forced. Everyone has to use the same type of technology for those integrations just to make it simple. The other tools you use, Justin, you're talking about decentralized technology. Justin. Yes, seriously. But come on, seriously, where I'm talking about one area of our industry, just make it the same. [32:04] JD: Where the problems happen though is that is the difference in plan design. And then it also happens to where. Just because someone is using Payroll provider X doesn't mean they use it to all its functionality. So they're only using certain parts of it. And there's no one that's getting in there. There's very little people these days that are getting in there and looking at it and looking at all those pathways and going like is this right? And does it match up? Is the data the payroll provider that's coming over into the administrator or the record keeper, does it match up with the plan provisions properly? There's very few people doing that. So anyways, that's an opportunity for like Guy said, for third party administrators that want to do it and. Or advisors. Yes. [32:46] Chad: Well, the opportunity in my mind is for advisors who want to make an impact in this space to build out their team. There are third party administrators. There are record keepers that force payroll integration. You can. You can put that pressure on your client, as Mark is saying. So spend the time now, do your due diligence, figure out who your team is so that when you go in and talk to a client about these efficiencies and what you want to do to make an impact, you've got the right people in place. [33:14] JD: I don't understand. What was the question is how many payroll providers are we talking about from Matt? You know what he's talking about there, John? [33:21] Chad: Nope. [33:21] JD: Webby, stop with the peps. I was just trying to get. My God, that counts. [33:25] Chad: That counts. [33:26] JD: See what you did, Webb. See what you did. [33:28] Chad: Good job, Webby. [33:29] JD: All right, Brandon, I'd like to break this up with a little fun. Got a new game. I think during the game that Chad and Mark might have to duck for it to work properly. But you don't have to do that yet. But Brandon, let's play the little intro, which I think is really fun. The game is called which One of these things is not like the other. Go ahead. One of these things is not like the others. One of these things doesn't belong. Can you tell which thing is not like the other by the time I finish this song? Okay, John, you do not have to. We're not going to play the song out. You can take all the time you want. And I'm going to start you off with an easy one. And this is for you, Mr. Faustino. But no, Chad, Justin, you're. I think you're fine where your heads are at. You're good. I will change this next time and make it. Put them all up to the top. And oh, look at the cool little Retire Alex Sesame street logo. I like that. All right, John, you look at those four things and you just got to tell me which one doesn't belong. And then you tell me why. What's your reasoning behind it? I really like that music intro. It's calmed me. Like I feel like I can meditate to that. [34:45] John Faustino: So I'm having a tough time reading the one on the upper left. [34:49] JD: It says Tryon. You recognize that? [34:53] John Faustino: I'm going to say paylocity does not belong. [34:56] JD: You got it. You're solid brand. Showing the results if we can. Yeah. Paylocity is a payroll company, not a third party administrator like the others. You got it. You got it, John. One for one. Phenomenal. And anyone, if you got ideas for this game in the future, let me know. Bran and I were shooting around all kinds of crazy Ones throughout the day. Let's go to round two. You're one for one. Got some industry folks up there, so we're going to test your knowledge of people. [35:23] John Faustino: Let's go. Bottom right. Is not a prominent ERISA attorney. [35:26] JD: Damn, you're fucking good at this. Faustino. Shit. Solid. Okay. Give him a. [35:34] Chad: Give him. [35:34] JD: Oh, yeah, that's right. What? [35:37] Chad: Employee Retirement Income Security Act. [35:39] JD: Oh, okay. Okay. Two for two. And. But you can play along in the audience. This game's going a lot faster than I planned. Take up. [35:51] Chad: John, apparently JD did not have much faith in you. [35:55] JD: Brandon, can you play the song again? I just want to hear the song one more time. One of these things is not like the others. One of these things doesn't belong. [36:10] Chad: Oh, this is bad. [36:14] JD: Okay, John, be careful here. [36:19] Chad: First off. [36:20] JD: What? [36:21] John Faustino: Yeah, yeah. [36:22] JD: Wait, don't answer yet. Anyone in the audience. [36:25] Chad: Chad thinks it's wrong, but it's not wrong, dude, because all of them are. [36:29] JD: Which one? [36:30] Chad: I said it was bad. [36:31] JD: Which one of these things is not like the other? And out there in the audience, you can guess too. All right, John, give us some thought. Give us some thought. [36:40] John Faustino: I'm not 100 certain, but I believe it's Kurt Cobain. Am I wrong? [36:46] JD: What is your reasoning? [36:47] John Faustino: My reason is that the others died from alcohol poisoning or whatever, and Cobain was heroin. [36:55] Chad: Oh, deed. [36:57] JD: I think Cobain killed himself, but you are a sick motherfucker. I didn't. I had no idea. Yeah, that's what I originally thought. Oh, I mean, John Faustino, you are a dark man. [37:14] John Faustino: I just saw a great Kurt Cobain. [37:20] Chad: He was a musician. Blues brothers. He absolutely was. Technicality. [37:26] JD: Technicality. Hey, Brandon and JD effed that up. No, we didn't. [37:32] Chad: But. But still alive, right? [37:36] JD: John, show John that we were playing a game with him. We were going to get him either way. Show the other one. [37:45] Chad: Oh, you had. [37:46] JD: We were messing with. Yeah, we. [37:47] Chad: We were. [37:48] JD: We. Brandon and I were making bets. Is he going to take comedian or is he going to go suicide versus overdose? And you fell right into my traps. That was awesome. That was great. Love it. So you're not sick. [38:00] Chad: We. [38:00] JD: That's exactly where. How we. [38:02] Chad: You. You guys are. [38:03] JD: Yeah, we're sick. [38:04] Chad: Oh, for sure. What happened when JD and Brandon get together? [38:06] JD: That was my game. That was my game. Play it out a little bit. [38:12] Chad: Can we. Can we. Panel or Internet? It's not doing. Yeah. Hey, Justin and Chad, can we. Can we rate JD's new game? Yeah, I'm gonna give that. I like 9.2. I think we can turn it into a quiz of death? I think that actually. The quiz of Death, that's. Yeah, I have a quiz of death question for you, Chad. No, thanks, by the way. I can defend my answer. I laid up in bed defending my answer last week. I was right. No, hammered last week. There's no way you did that. No, J.D. [38:48] John Faustino: approved this. [38:49] Chad: J.D. approved this. I have a question for you, Chad, and it you. I hope you're ready. If you don't get it right, you have to do something bad. What was on May 10 on Sunday? What did that day Mark? What was. What was Sunday? What was the importance of Sunday? Oh, geez. Mark's 10 year anniversary at work. [39:18] JD: Wow. [39:19] Chad: You got it right, you son of a bitch. Ten years, Mark. Ten years, Mark. [39:26] JD: Our, our payroll system, like sends me notifications like that and I'm just. Oh, fuck it. Get this, get out of my way. I don't give a shit about this stuff. Give me 10 more years and I'll send you a fucking Swatch watch or something. All right, let's get back to the subject. And John, if the audience gets upset about this one, I'm going to say out loud that it was you that requested this subject, but I do think it's an interesting time. Esg. Oh, son of a bitch. Ding. Socially responsible funds and retirement plans. I'm quoting a. Is this bad? To quote a Morningstar article with the Fi360 guy on. No, you're cool. Hey, I'm kind of going down a rabbit hole here, but I've noticed I feel like a lot of fi3 60s are past morning stars. Is that a thing? What's the relationship like there? You're not competitors. You. [40:27] John Faustino: Wolowitz brought a bunch of us over, but we use Morningstar data. We've got a lot of friends there, so we don't compete so heavily with Morningstar. [40:38] JD: Okay. And Woolney was behind all that. All right. In this Morningstar study, they said only 3% of 401k plans offer a socially responsible option. And that's a trip to me. The DoL published a final rule and this is kind of behind the boy, Trump. What's going on? Department of Labor. Okay, I'll hold on to that one. Got it right here in my hand. And the rule, the final rule said that Plan Fiduciary should select their investments based on pecuniary. Pecuninary. Pecuniary. Pecuniary. Like financial related things and basically pushing back on the whole kind of social funds movement and or trend Recently, Preston Rutledge, who just might be a future guest on this show, said that the new administration is going to push back and be more pro. You know, they're pro climate change or not pro climate change. They're pro fixing the climate change and Biden's pro climate change. And so they'll be supporters of this and create kind of new rules and things. So, John, you're in the business of reviewing, categorizing, ranking investments. Are you a fan of socially responsible funds, or is this just going to be a big pain in your ass? As someone who has to create all [42:13] John Faustino: the metrics, I think this is something else that provides an opportunity for advisors. So environmentally, environmental, social, governance funds, socially responsible funds. Did I stop myself there? So, you know, I think if there's interest from participants, it helps if they've got a tighter affiliation with their holdings. If you look at what happened when the market went down after coronavirus, there were a lot of folks that stayed put if they had a more personalized portfolio. So I think educating folks on the social benefits that their portfolio may help further is a great thing. But the counter side of that is that if you're a fiduciary, you have to focus on those pecuniary factors. So you got to focus on making money for the participants and their beneficiaries first and foremost. So there's a balance. And one of the issues out there is there's this greenwashing where you've got people that market their fund as environmental, social and governance focused, but it's a bad fund. So you can't say that all indexed funds are good or all indexed funds are bad, or annuities are good or bad. You've got to look at the underlying metrics. So that's an issue. One of the big issues in the US is that companies aren't forced to disclose all of their exposures like they are in Europe. So if Morningstar did this, Morningstar did this study, the Morningstar ratings and the MSCI ratings, and I'll drink for that one, they don't have a high correlation. They're not correlated. So it's tough for folks to even understand where these exposures are. Eventually they're going to be like factor investing, where you're looking at size and style and momentum and those kind of things. It's going to get there. But ultimately, I believe these type of investments are good to consider for fiduciary accounts. But you've got to do your due diligence like you do on any other [44:20] JD: one I love some of the chat is FY360 prepping for that. Are you going to try to dip your toe in helping advisors understand what funds, even though it's such a gray area, might be considered socially responsible or not? [44:40] John Faustino: We're looking at providers right now and we're looking at aggregators. So we're looking at folks that get data from multiple ESG providers instead of looking at just one perspective. [44:49] JD: Bring them up. Chad, can advisors use this trend to their advantage? [45:01] Chad: Wow, you're stating it only as a trend at this point. [45:05] JD: Oh, sorry. Not a trend. This movement. [45:09] Chad: Yes, they absolutely can. And I think you need to know your audience. Us being in Northern California absolutely is a topic that advisors are using, leveraging, talking about or passionate about. I'm not sure that's the same if you're selling 401k plans and the flyover states. But it is something that you should be cognizant of and you should have a position on, in my opinion. I, I say you should have a position. I'm not sure what mine is in terms of the prudence of them in 401k plans. I understand we're passionate and we want to do what we believe is right, but I'm still not sure I understand the benefit of those investments versus others being made available in a 401 plan. [45:50] JD: I've told this story I think once before, but I'll tell it again. I was in a point of sale with an advisor on a pretty big plan for us. I think it was pushing 20, 25 million. And I'm convinced to this day that he won that plan. We won that plan together because of the story he told around the American century target date funds and how American Century was giving some, I can't remember, percentage of their profits. [46:24] Chad: That's a stretch though, to cancer. [46:26] JD: No, but, but it ties into the same thing to cancer research. And so the decision makers were so enamored with that conversation like that it, it took over the whole meeting. And there's this really like positive, feel good vibe. And I'm convinced that that's why they chose that advisor and chose us. I've told the story before. I know, Shannon, I preface that. Don't rip on me for it. And so in the same light, I think that advisors could use socially responsible and this concept of talking to the fiduciaries and saying, hey, look, your participants will feel good about where the money's going and you as the fiduciary committee will feel good about where the money's Going and will create more of this kind of positive vibe around the retirement plan and the impact that it has on the world. Like why could that not be a very successful strategy to take Mark? You could do that. You're a feel good tree hugger kind of guy. [47:27] Chad: Oh, I'm not. Mark doesn't even recycle. [47:34] JD: He doesn't. [47:35] Chad: Yes, I do. It's absolutely joke. JD I think any advisor that is passionate about a topic and that's what I'm finding with socially responsible Jason, investment related advisors, folks that are willing to put their, their foot down and say this is important to me and it's important to your employees and they'll feel good about it. Any advisor that is passionate about a topic or what they're doing, those are the folks that are winning the business. [48:00] JD: That's good. [48:02] Chad: Those that are stepping in. Yeah, you can't fake it. And you need to have conviction in what you're saying. And that's kind of why I prefaced initially saying I haven't taken a stance yet. I believe in socially responsible investing and I believe in it from a personal perspective. But as a 401 nerd, I am not certain yet that it's right to be in a core menu. [48:23] John Faustino: I think the reality is that every fund has some environmental, social and governance exposures. It's just a matter of understanding what those exposures are like. I say they're factors. Some folks market their funds for those reasons, but every fund is made up of companies. Those companies have some exposure, some good, some bad to those factors. And there's been some good academic research in the last five or six years on the alpha associated with those exposures. If you look at what's going on in the US people are getting more, you know, voting with their, with their wallets and companies and the like. So I'm not suggesting that you forget about the fiduciary aspects, but you know, if you can get that feel good story in there, help out. [49:09] Chad: It'd be super interesting to see the deferral rate difference between those that are usually using socially responsible funds and those that are not. Because I guarantee you it's people that are more involved in their financial life. [49:19] JD: Chad, you're just making the classic argument, the classic debate, which is you're just, and this is what we heard from the Trump administration in a sense, or the DLL under Trump, which was that these decisions that you're making as a fiduciary are because. Okay, yeah, yeah, Department of Labor are so important because these are people's retirement money. Right. We're trying to give them money that they can retire on. Therefore we have to make decisions based on qualitative and quantitative factors and standard deviat and alpha and expense ratio and all these things. And they don't want to bring in feel good tree hugging to it because it shouldn't be there. But that's, and that's exactly what we're talking about here today is it looks like that might change a little bit and they might get the green light to do it. And then it'll be interesting to see where our industry goes in terms of who adapts to that and takes advantage of it or who kind of sticks to shit. Chad, maybe people will win business. Taking your approach that you just talked about, right, saying oh, screw those guys, you need to do this because it's important to do it this way. Who knows, Maybe both sides win in different ways. I don't know. Just wanted to talk about it. Yeah, Brandon. I love having Brandon next to me. It's kind of fun. [50:33] Chad: What did he say? [50:35] JD: He's talking. He wants. He's bullish on tobacco and bullets. Bullets. [50:43] Chad: My father in law wrote me today to see if my brother could procure any bullets for him. I don't think it works like that. [50:51] JD: We should, we'll, we'll, we'll jump back in the crypto. I think we do need to talk about. Not today. But we'll have to put crypto on the agenda the next few weeks. Chad gets very excited about it as well. Okay. I want to vote for. I want to. We're Wheel of Ice. Holy shit. Spin the fucking wheel. Spin the wheel of Ice. John. John is not going to partake. He's going to pass on the Wheel of Ice. Audience, what do you think of John not partaking in the Wheel of Ice? Let us know. [51:20] Chad: Mine's cold today. Thank goodness. [51:24] John Faustino: Yes. [51:25] Chad: Was there not an. There was not an all on there this time, was there? Should have been. God. [51:35] JD: Weak. [51:35] Chad: Weak. Only when it lands on all do we all end up drinking everything. [51:41] JD: Let's see if we can fit in a quick topic before we get to chat. Bar champion. The concept of teaching or training for plan sponsors. AKA I think at FY360, John, you guys call it Fiduciary Essentials for Defined contribution Plans. [52:01] John Faustino: That's right. [52:02] JD: That's a catchy product name. So the question. Sorry I'm being so mean. Why do I default to the mean guy? I don't know why. It's my insecurities. I lash out. Chad is There I'm going to go to you, John, you got a product for it. Is there any hope? It sounds like a nice concept to train plan sponsors, give them fiduciary training, give them accreditation, you know, keep them on that path. But I know there's a lot of people out there that feel like that's a losing cause, it's never going to come to fruition. What say you and what say Fi360? [52:40] John Faustino: I think it's a good business development opportunity. I think it's, you know, with all the regulation out there now, it's a good opportunity for advisors to use that training as, you know, as a hook for business development. So that's what we've seen advisors do. So we have the accredited investment fiduciary designation and if you hold that designation, you can deliver that plan sponsored training. So we've seen advisors put out a call for plan committees in their area and they'll say, hey, I'll do this training for you for free. It's something that Callan just did a study and a lot of plan sponsors are looking to train their committees a little bit more. So I think there's a market need for it and if you can work some business development in with it as well too, it's a good thing. [53:26] JD: Chad, have you ever experienced advisors that part of their vibe is to put their committees, their clients, through some kind of organized training? [53:38] Chad: Yes. Mostly in the larger space and mostly with advisors that are very good in the 401k arena and are trying to create strong client retention and they know these other areas that they can support make sure that plan operations run well by making sure that they understand what their requirements are as fiduciaries. I've seen it not often call it in 2% of the advisors that we're working with, but it's there. [54:04] JD: You think it happened. [54:05] Chad: I will tell you, I've never seen a client that didn't enjoy it, by the way, because for sure, because the vast majority of the conversation was operational based. It was, how am I supposed to be doing this? You know, definition of compensation, understanding eligibility, things that were more along the lines of running the plan and not just their liabilities and exposures and that's what they appreciated. [54:32] JD: I mean, I don't want to be a pessimist. I definitely feel like if you had a cooperative committee and you could, aside from your fiduciary review meetings, schedule time to like sit them down and make them better at what they do, obviously I think that would be awesome. That's like a 401k utopia. I just, given my choice as an advisor, a record keeper, a third party administrator on where I'm going to spend my energy, I wonder, I'm not trying to be the negative guy here. Is like, is that where my energy is best served or is it best served in doing it for them and creating solutions? Or you know, I'm in charge and telling them when I say jump, my committee says how high? And they do what I tell them as opposed to trying to make them part of the conversation, which I know would be ideal. [55:19] Chad: Jd, when do you think a good advisor who's doing a good job when they lose a client in the 401k space, what tends to be happening when they lose that client? [55:33] JD: I would tend to think either they failed at their job, they're not doing [55:36] Chad: a lot, or a good advisor, they're [55:38] JD: doing a good job, or it's a grass is greener type of approach. Someone has caught their ear on some subject or something that they go, oh, that's art, let me go that way. [55:48] Chad: You're kind of double making the point which would. I didn't think that would be your answer, but if you're talking about things like this, maybe grass is greener. Is this is one of those points. But I was going to say it's when HR turns over. When hr, the CFO turn over. That's three. That's three. Oh, I thought that was twice. Damn it. You said human resources twice and chief executive officer once. Oh, that's right. I'm going to get through this bottle tonight. I think that's when most advisors end up losing the relationship. And if you make it an effort when that happens, to immediately get in front of that person and provide fiduciary training for them, you're going to solidify that relationship. Absolutely. If you reach out to them when that human resources or that, that, that. I'm not going to say it, Mark. That high ranking executive turns over and you spend a little bit of time with them explaining the plans that they have, the operations of that plan, going through some fiduciary training with them, I can almost guarantee you they're not going to bring in their team at that point. They're going to give you a shot. We've said it for years too. Advisors that track their progress year over year and when that human resource person turns over, slides across the table, their fiduciary review binder, whatever it may be, and says, hey, look at the impact that we've made. We've done These review meetings. I've done, these education meetings. Here's the efforts that I put forth. Here's the outcomes of the plan. You're retaining that business when that turns over. And so I think that there's a big opportunity there for folks. [57:17] JD: Chad, that was a very pithy statement. Very pithy. [57:21] Chad: Did you Google it? [57:22] JD: Do you think advisors in the flyover states are more apt to do this than the non fly? I just wanted to use flyover states because I've never used that before. [57:29] John Faustino: You use it earlier. [57:30] JD: I'm like, oh, I would say Midwest. I like flyover states. Chad, that's pretty sick. Let's vote for chat bar champion. Hold on. [57:36] Chad: I got one. I got one thing before we move on, John. I have searched frantically for this and I've not found it. So if I have to drink for it, so be it. Does FI in the FI 360 stand for anything? [57:49] John Faustino: It was Fiduciary 360 and then it was shortened to FI 360. [57:53] Chad: I know that. Okay. But it doesn't stand for anything. So we're good. Okay. Okay. I tried. Were you gonna rewind you guys out and think about it tonight and how many shots we had to take? [58:04] JD: Oh, Greg deserves a vote for that one, but I'm going with Jason for my vote today. [58:09] Chad: Same here. [58:09] JD: Does Cali count as a flyover state when I go to Hawaii? Very cool. Greg's got it. Greg's. Brandon's laughing. Although Brandon's got like six empty Bud Light cans on his desk, so he'll laugh at anything at this point. Let's go chop our champion, Justin, who is. [58:29] Chad: Sorry to steal it, Jason. [58:32] JD: Oh, son of a bitch. I just said it out loud. You can't. [58:36] Chad: He was my choice way in the beginning. The green screen blocks it out now. [58:40] JD: Fair enough. Chad, you're good for yes. John, you're the guest speak. John, you're the guest. [58:47] John Faustino: Jason. Jason's the one when I was rambling on that said five words or less, [58:51] JD: I don't know now I agree. [58:53] Chad: That was Jason. [58:54] John Faustino: That was. That was the best one. [58:55] Chad: It was either Greg or Jason that said that one. Yeah. [58:59] JD: Has Jason Grant been in the semis before, Mark? [59:02] Chad: Yeah. [59:03] JD: Yeah. [59:03] Chad: Why are you asking me? [59:04] John Faustino: I don't. [59:05] JD: Wow, he's moving up in the world. He's got his game on. Chad, who's your vote? [59:09] Chad: Jason was my vote, but I had two written down. The other one was Dan Gannett, who I've never seen on here before, but I said earlier he was on fire. He had some good comments earlier. [59:20] JD: He's no longer here. [59:22] Chad: I'm just gonna. [59:24] JD: It's not a must be present thing. Mark, who's your vote? Mark? Shannon, I think. Shannon. That's cool. Very good. I think it's kind of baller that he left. He should get extra votes. It's like, I'm out of here. [59:36] Chad: He's a newbie too. He doesn't know how exciting. After show, he's like. [59:40] JD: He's like, did you do. There's some dope comments. I'm out. I'm out of here. All right, Faustino, rhymes with casino and bambino. What's your vote? [59:53] Chad: Jason here, he said, wow, gotta be a runaway. [59:58] JD: Everyone's stealing my vote. I feel like Jason's gonna win now because he got so much support, but it's. If I'm honest with myself, Jason's my vote, so no reason to. I know it's not Amanda. Amanda didn't really bring it tonight. [1:00:10] Chad: She did. Via the text chain. Yeah. I told her. I'm like, you guys are blowing us up. I'm trying to focus in on the show. [1:00:16] JD: Yeah. [1:00:17] Chad: You guys have a text chain going on. [1:00:19] JD: All right. [1:00:20] Chad: Oh, just not on it. [1:00:22] JD: Oh. Because I'm on my phone. I can actually vote on a vote for you. [1:00:25] Chad: Justin didn't make the cut. Damn. I don't know what it's like to feel like Mark. [1:00:32] JD: I don't see the screen. Yes, I do. Ooh, it's kind of tight a little bit. Keep voting, people. Keep voting. There's a race going on here. Not really. Jason, you kind of got it. Jason's running away with it. Jason, congrats, bro. You're moving up in the world. You got to check this guy out. I'm going to dig in a little more. I'm impressed. I'm impressed. Okay. Thank you, everyone, for tuning in. We're gonna. Oh, shit. I wanted to let you guys know last week, I talked about it. I'll just. Quick. Retireholics will be in Alaska July 16th through July 19th for the GRP Advisor Alliance Alaska Summit. It's kind of a VIP thing, so if you're not part of their group, you can't really go there, but. [1:01:21] Chad: Ouch. [1:01:22] JD: But for those that are part of [1:01:23] Chad: that group, the show ended. [1:01:24] JD: We'll see you there. We're about to end. Yeah. [1:01:26] Chad: And it hasn't ended yet. [1:01:28] JD: Oh, shit. How many? [1:01:30] Chad: Two. I was gonna say let them keep going, Mark. [1:01:32] JD: We will be In Scottsdale, Arizona, September 22nd through the 24th. Amanda is there. Arizona, aren't you in Arizona for the Institutional Investor Retirement Plan Advisor Summit. We're doing another Institutional Investor Retirement Plan. Makes me laugh so much because that sounds so important. [1:01:51] Chad: And we're fucking idiots who drink on a show. [1:01:56] JD: We' in Chicago for that one. And that will be September 29th through the 31st. So if you're anywhere within a, you know, 24 hour drive of Chicago, come see us and maybe we'll have dinner with only. I think we will think. [1:02:09] Chad: Well, that would be awesome. I know John know you're in Michigan, but you're a Chicago native so you should probably come hang out, have dinner [1:02:16] JD: with only and us. And then we will be in Nashville, Tennessee. Oh yeah. For the wealth at work. Which is formally known as the one of them flyover states. Yes, it is. I believe so. And that'll be October 24th through the 26th. Let's play a song. Brandon, let's head into a little bit after show. Play the song. [1:02:43] Chad: You can't leave, John. [1:02:44] JD: Thanks for tuning in, everybody. Thanks for tuning in. We love you. [1:02:47] Chad: Thank you. [1:02:47] JD: I. [1:02:49] John Faustino: You gotta, you gotta ask the question about me and Walnut. [1:02:51] JD: Yes. [1:02:52] Chad: Oh, yeah. [1:02:52] JD: After show. Okay, we'll do that in the after show. [1:03:03] Chad: It was all punk for the rest of the show. [1:03:06] JD: Oh, John's very into the 80s now. [1:03:08] Chad: What happened to that? [1:03:12] JD: Can you name this band? I bet you can't. [1:03:14] Chad: Damn straight I can. [1:03:15] John Faustino: Kasha Google. [1:03:17] JD: Oh, fucking fuckino bamboo.