McNab Financial

With much attention, Facebook recently offered an Initial Public Offering or IPO. Throughout the process, the media commonly used financial language many investors did not understand. I received multiple questions from clients about IPOs.

An initial public offering is the first offering of stock from a private company. Stocks, also called equity, provide investors the opportunity to own a portion of a company and participate in guiding the direction of the company through proxy voting. Most popular IPOs are only available to very wealthy individuals or institutional investors.

Many investors think of participating in an IPO as a quick way to make a large return. This stems from the time in the late 90s when “dotcom” IPOs could not lose. After the tech bubble burst in the years following, investors became careful investing in Initial Public Offerings. Investing in an IPO does not guarantee a profit. After the media hype leading up to Facebook’s IPO, the stock finished nearly flat for the day.

This article was written by Kevin J. McNab. Kevin is President of McNab Financial, LLC and is a CFP®, ChFC®, and CRPC®. McNab Financial, LLC is a Registered Investment Advisor in the State of Colorado.

The Department of Labor’s Employee Benefits Security Administration recently released the final rule to help Americans invest and manage money in 401(k) plans with additional clarity. Many experts are referring to the new regulations as the Fee Disclosure Rules or simply 408(b)(2). The overall idea is to provide plan sponsors (employers) and plan participants (employees) in retirement plans transparency in the form of plan information, conflicts of interest, mutual fund expenses, and other fees that may apply. Among other things, the final rules reinforce the fact that plan sponsors are fiduciaries for their employees and are held to the highest standards of prudence. The new regulations go into effect on July 1, 2012 with plan sponsors (employers) required to provide the Fee Disclosure Statement within 60 days –  August 30.

These new regulations will have only a small effect on most Registered Investment Advisors that work on a fiduciary, fee-only basis. However, they will greatly affect commissioned based advisors offering 401(k) plans who are not working as a fiduciary. Employers offering 401(k)s will seriously have to consider if it makes sense to work with an advisor that is not acting as a fiduciary and carefully review the conflict of interest that commissioned advisors present. With the upcoming new regulations, now is a good time for small businesses to review their retirement plans to make sure they are aware of any conflicts of interest, review the reasonableness of fund fees and administration fees, assess if the advisor they are working with is a fiduciary, and review all documents with an experienced ERISA attorney.

McNab Financial is a leading firm providing 401(k)s to small business in Colorado. This article is written by Kevin J. McNab. Kevin is President of McNab Financial, LLC and is a CFP®, ChFC®, and CRPC®. This article is not intended to contain investment advice. Please contact your investment professional to discuss funds and ideas discussed in this article. McNab Financial, LLC is a Registered Investment Advisor in the State of Colorado.

There was a time when 401(k) retirement plans were out of the reach of many small businesses due to high cost and complex administrative duties. This has changed – mainly due to technology. Retirement plans are now very cost effective and the administration streamlined. Any business structure – whether it is a C Corporation, S Corporation, partnership, or sole proprietorship can establish a 401(k) designed to benefit the business, the owner, executives, and employees.

Tax Advantages

Contributions made by employers are tax deductible to the business or the deduction flows through to the owners of the company. In addition, contributions made by employees are deductible to the employee and grow tax deferred. Therefore, overall employer payroll taxes may be reduced because employee taxable income is reduced with pre-tax 401(k) contributions.

Other Advantages

There are many benefits associated with opening and maintaining a 401(k). The most obvious advantage of a 401(k) plan is an efficient, tax effective way for the CEO, executives, and employees to save for retirement. A 401(k) provides flexibility to tailor a plan according to the executive’s needs. A 401(k) allows the business to attract key employees and retain key employees by rewarding the most important employees (within guidelines).

What Criteria Should I Look For with a Plan Administrator?

There are typically two entities a small business owner works with when opening and maintaining a 401(k) plan. First, is a plan administrator and second is an investment advisor. They work together for the benefit of the business owner and the goals associated with opening a 401(k) plan. The plan administrator will typically charge less than $2,000 for the initial set up and/or transfer of the plan. There also may be a small ongoing monthly fee charged by the administrator. A good plan administrator will be knowledgeable and active implementing the appropriate retirement plan, participate in an initial enrollment meeting, provide ongoing record keeping and support, and provide the business with a tax form 5500.

What Criteria Should I Look for with an Investment Advisor?

When a business implements a retirement plan, they assume legal responsibility for managing someone else’s money. An investment advisor plays a critical role mitigating risks for a business that offers a 401(k). One of the first steps a business can take to mitigate risks is to hire experts – an advisor. The first critical decision will be to find an appropriate advisor. A fee-based advisor will provide transparency and avoid a potential conflict of interest that a commissioned based advisor might have. A knowledgeable fee-based advisor will provide advice to help choose diversified investment options, an investor policy statement (IPS), low cost funds, and a way to monitor the investments in the plan according the IPS. A good advisor will also provide ongoing financial education to employees. This process allows the business owner to document the steps taken to provide a high quality 401(k) plan for employees which mitigates the risk of having the plan.

Red Flags

Business owners with existing accounts should be aware of certain “red flags” that may lead to problems with regulatory agencies. These include:

1) High expense mutual funds with no 401(k) fee transparency
2) An out-of-date or no investor policy statement (IPS)
3) Lack or no ongoing financial education or seminars
4) Lack of diversification with investment choices
5) No system or criteria to monitor the 401(k) and mutual funds

It is the fiduciary responsibility of the business owner to take these steps to maintain a 401(k) plan. It can be made easy with the appropriate team in place. If these steps are not taken, contact a professional investment advisor familiar with mitigating risk.

There is no longer an excuse – take your business to the next level!

McNab Financial is a leading firm providing 401(k)s to small business in Colorado. This article is written by Kevin J. McNab. Kevin is President of McNab Financial, LLC and is a CFP®, ChFC®, and CRPC®. This article is not intended to contain investment advice. Please contact your investment professional to discuss funds discussed in this article. McNab Financial, LLC is a Registered Investment Advisor in the State of Colorado.