Exclusive Interview: Frontline Producer Explains Controversial 401k Documentary – The Final Take
(This is the final installment in a series of four articles.)
After 53 minutes of watching the PBS Frontline episode “The Retirement Gamble,” many fiduciary advocates were left wanting, but not for the reasons you might think. The industry as a whole had been abuzz in the weeks prior to the airing of producer Martin Smith’s documentary. Most of the rumblings, though, focused on the concern Smith would echo the “kill the 401k” mantra or the “only the rich benefit from 401k plans” refrain we’ve been hearing out of Washington these last few months. Rather than these liberal bromides, Smith delivered an incendiary “Wall Street is ripping you off” piece.
Unlike the alleged perpetrators on Wall Street, who commentators say quite frankly did not come off too well on the show, fiduciary advocates had no problem with someone exposing the real problems that exist when a non-fiduciary advises a 401k plan or when a “fiduciary” uses a DOL exemption to engage in self-dealing. Their issue instead deals with one of misplaced emphasis. Smith admitted in his interview with FiduciaryNews.com that he wanted to “alert” the general audience that their 401k plan “isn’t free” and he was intent to “shock” them with the horrors of high fees.
We’ve already discussed the questionable “facts” Smith relied on in the previous installment of this series. For this final segment, we want to focus on what many feel was an under-represented reality – the number one problem in the eyes of practitioners and academics alike.
David Rae, Vice-President Client Services at Trilogy Financial Services in Torrance, California, sums it up this way: “At the end of the day, adequately funding your retirement account, and avoiding the temptation to raid your accounts are the most important factors in determining whether you will be able to retire comfortably.” Rae thinks the overemphasis on fees did nothing but “put 401k’s in a seemingly bad light.” He said, “I hope this show doesn’t scare people away from saving for retirement in a 401k plan or otherwise.”
Dan Egan, Director of Behavioral Finance and Investing at Betterment. New York, NY, said, “The worst part of the show is that it was incredibly fear-mongering. The fact is that we have a hard enough time getting people to save and invest for retirement. Without them saving, it’s basically a losing game, and you shouldn’t do it.”
Rae said, “I hope this show doesn’t scare people away from saving for retirement in a 401k plan or otherwise.”
Indeed, immediately after the show, viewers were encouraged to ask questions. One person voiced concern about investing in a 401k. To their credit, the producers pointed out they recommend people stay invested and continue to invest in their 401k plans.
That so many believed “The Retirement Gamble” didn’t feature the importance of savings suggested the show’s producers might have been unfamiliar with a 2012 Wharton Study that concluded savings were more important than asset allocation when it comes to retirement success, (see “New Study Reveals Three 401k Strategies More Important than Asset AllocationFiduciaryNews.com, August 14, 2012). When asked about this study, Martin said he wasn’t familiar with it, but he did say, “The point about savings is a good one. We feel we brought it up in the beginning of the program.”
Ryan Knutson, the show’s associate producer and researcher, later reread the Wharton study and told FiduciaryNews.com, “What we took from it is that there are a number of factors that are important for a secure retirement, including saving more and starting sooner. We did interview Alicia [Munnell, one of the study’s authors] for the documentary, and she made it clear that lowering fees — along with working longer and saving from an earlier age — are all important factors in improving the system.”
Editor’s Note: Alicia Munnell is better known for authoring a more recent paper, (see “Yet Another Independent Study Highlights High Conflict-of-Interest Cost to Retirement Investors,” FiduciaryNews.com, February 26, 2013), which, like the Frontline show, fixated on the high fees caused by non-fiduciary/broker conflicts-of-interest before digressing into a non-correlated advocacy of index funds, again, like the Frontline show.]
Despite criticism to the contrary, Knutson believes “The Retirement Gamble” did address the points of the Wharton study. “Indeed,” he said, “Brooks Hamilton says near the beginning of the film that ‘you need 10 or 12 times pay, and maybe 15. So if you make $100,000 a year, you need $1.5 million to be OK. You need to save more. You need to start sooner. You can’t start work when you’re 20 or 22 and decide to get serious about this in your 40s. The boat has sailed.’ A clip from an industry ad near the beginning of the program says if one starts investing $300 a month at 23 he or she can retire a millionaire. There’s no doubt that if one doesn’t save at all, he or she will have no ability to retire. Also, several of those profiled in the documentary (myself included) point out that they’ll have to continue working longer than planned. As we’ve learned, working an extra 5 years is not possible for all Americans. Many get laid off or become ill, thus ending their working careers involuntarily.”
Of course, this (once more) leaves us with the question: “Shouldn’t people be responsible for their own retirement?”
Mike Alfred, Co-Founder and CEO of BrightScope, said, “Simply put, the Frontline producers completely ignored the role and responsibility that individuals have in the process, probably because this angle offers little in the way of entertainment value. The number one problem with retirement savings in America is that American workers don’t save enough. End of story. The fact that this was essentially ignored shows that the producers had little interest in the truth.”
When confronted about the over emphasis on fees, the producers restated their intent to alert investors that their 401k is not free.
Alison Farrin, COO at Innovative Pension Strategy & Design in Poway, California: “How could anyone beyond first grade think their retirement plan is free? Nothing in life is free except the air we breathe and the sunshine. The real reality is that most of the population expects someone else to figure it out for them. The ones that don’t – one in eight of us, are millionaires. It simply takes paying a modicum of attention, and some discipline. While those of us in the business are outraged, within the greater community – it is still the case that no one cared before Frontline and no one cares after it.”
Tim Wochok, Retirement Plan Consultant at Loring Ward in San Jose, California, complains, “The show removes personal responsibility and accountability from individual investors and places full blame on politicians, brokers and mutual fund companies. I agree that politicians, brokers and mutual fund companies have played a large role in the detriments to our system; however, individuals need to play a more active role in securing their retirement savings by spending less, saving more and working with a trusted fiduciary that will help position them for the highest probability of success.”
Which brings us to Martin Smith’s role as a plan sponsor, (as opposed to his role as a producer). In relying on a non-fiduciary to set-up and construct his own company’s 401k plan, Smith committed the very error many small business owners commit. And he can’t totally blame hidden fees for his situation. (Regulators, take note of this.) He claims his own index fund has an expense ratio of 60 basis points, well above the average. Mutual fund expense ratios have been disclosed for a long time. The fact this severe expense ratio aberration did not alarm or “alert” Smith tells us the practical value of disclosure – none – but long-time readers of these pages would already know that (see “Exclusive Interview with Yale’s Daylian Cain: Just a Sugar Pill? Disclosure’s ‘Ah-Ha!’ Moment,” FiduciaryNews.com, October 18, 2010). Add this to the omissions of “The Retirement Gamble.”
From his own telling, Smith gives us the impression he failed to fully exercise his fiduciary duty. Is it possible, rather than assume personal accountability for his plan’s failings, Smith has instead chosen to blame Wall Street? The fact he still hasn’t changed his plan provider means he’s likely acting like many of his small company brethren. Given the myriad of choices, and having been burned once, perhaps he’s like a deer in the headlights. Perhaps not. Perhaps it’s something else. As of result of Smith’s public admission regarding his personal 401k difficulty, the Plan Sponsor Council of America (PSCA) offered him free membership. When FiduciaryNews.com asked Smith if he’d take the PSCA up on their offer, he said, “No, I don’t think so.” Again, is it the failure to take responsibility that prompts this response, or the bitterness and lack of trust after having been a victim?
Hilary Martin, 401k Plan Advisor at The Family Wealth Consulting Group in Silicon Valley, California, has this advice for Smith and others in his situation: “You can’t retire on being a victim. You have to take responsibility for your own financial success.”
Given the intent of “The Retirement Gamble,” the content of show unfortunately led respected objective observers, especially those who both write on the field and are successful practitioners within it, to conclude it was off the mark. Smith certainly had the weapons at his disposal to remove the perception of bias. He conceded to FiduciaryNews.com that he was only a generalist when it came to reporting and could in no way have known what experts know.
While we might be tempted to blame Smith for the failings of his own 401k plan, it’s not fair to blame him for the failings of his Frontline effort. After all, more than 20 years ago in “A Question of Accuracy: How Journalists and Scientists Report Research on Hazards,” (Journal of Communication, Volume 40, Issue 4, pages 102–116, December 1990), Senior Research Scientist Eleanor Singer found “An analysis of news stories that draw on published research shows that, in the process of making science lively and acceptable, most media reports introduce some errors of omission, emphasis, or fact.” Sadly, the consensus among most knowledgeable viewers is that “The Retirement Gamble” hit Singer’s trifecta of errors.
Perhaps Martin Smith, given the fallout after the airing of his report, recognizes this. When asked if he would do anything differently if he ever ran a follow-up to his 401k documentary, he said, “Yeah, the first thing I would do would be to call FiduciaryNews.com.”
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