But he nabs the wrong villain.
Earlier this month, comedian John Oliver took on 401(k)s on his weekly HBO show, Last Week Tonight With John Oliver. To judge by the sparse audience response, this won’t be the first show aired should there ever be a John Oliver retrospective. But I appreciated the effort. Although Scott Adams gave it a shot, and quite successfully at that, one doesn’t often see humorists honoring my subject with their attention.
The show opened with some general financial-services hilarity. Oliver highlighted fine print that notified prospective investors that “Financial Analyst, Financial Advisor, Financial Planner, Investment Consultant, and Wealth Manager are generic terms or job titles, and may be used by investment professionals who may not hold a specific credential.” He wouldn’t be much of a comedian if he couldn’t hit that target.
He blasted fixed annuities, showing various prizes that annuity providers offer, in addition to cash payouts, to those who sell their wares. (The rings were tacky indeed.) The commission for an $80,000 annuity, Oliver reported, is $4,000. My shock was minimal--a load mutual fund would cost a similar amount, and if one could find an asset-based advisor to accept an $80,000 account, it wouldn’t take many years to reach that $4,000 mark, either.
There was some predictable fun with the idea that only some financial advisors are required to work in their clients’ best interests (that is, fiduciaries), a few kicks at active portfolio managers, and then a Jack Bogle-style attack on fees. Financial-services companies, Oliver stated, delight in extolling the magic of compound interest when praising the power of investing but are strangely silent about the subject with expenses. Compound interest is not always a positive, he says. It cuts “both ways.”
(For a well-executed rebuttal to this segment, see Charlie Epstein’s video. Curiously, the man who bills himself as “America’s 401(k) coach” does not address Oliver’s 401(k)-related comments. He does, however, make a reasonable attempt at defending Oliver’s villains in his opening general segment: brokers, commissions, annuities.)
On to 401(k)s.
The sacrificial lamb was John Hancock. Mamas, if your babies ever grow up to run a fund company, tell them to avoid late-night comedians as customers! As Oliver tells the story, he wanted to set up a 401(k) for his 35-employee company. The plan got up and going--and then he realized, after combining through the plan documents, that the costs were 1.69% annually before fund expenses, along with a $24 per-participant fee.
That sounds awful--and is. There is, however, more to be said on the matter. (Some of the following material comes from John Hancock’s response, which was far more polite than what you hear on late-night television shows, or in political campaigns. Financial-services executives are well paid, but they have no fun.)