Our team at Shepherd Financial is passionate about creating retirement-ready employees and responsible plan fiduciaries. One of the many ways we achieve these goals is through our extensive fiduciary training. Committee members and key personnel are equipped with critical knowledge to properly execute their roles and responsibilities. As a result, participants may achieve more successful outcomes, because their plan is carefully developed and monitored.
An important component of fiduciary training is learning how to monitor investments. This includes the following tasks:
- Setting overall objectives and investment strategies for the plan
- Selecting appropriate investments in light of these goals and strategies
- Monitoring the plan’s investment options on an ongoing basis
- Adding or removing investments, when warranted, over time
- Ensuring the investment options meet the provisions of the investment policy statement (IPS)
- Reviewing the organizational structure of the portfolio managers
As you think about investment selection and monitoring within your own plan, there are certainly many factors contributing to participant retirement readiness, but selecting an appropriate qualified default investment alternative (QDIA) is critical; without an approved QDIA, participants who are not actively engaged or knowledgeable in selecting their investment mix could wind up in a fund that is not suitable for their circumstances. An approved QDIA can consist of a target date retirement fund, a balanced fund, or a professionally managed account. Notice requirements must also be met for a fund to qualify as a QDIA.
Three factors should be considered when selecting the QDIA for your plan: your participant base, risk, and the elements of a periodic review.
1. Participant Base
Think about the characteristics of your participant population, such as their salary levels, contribution rates, typical retirement age, and post-retirement withdrawal patterns. Also consider their ability to stick with the default fund over time.
Risk, rather than returns, is a critical component impacting participant behavior. Make sure you understand the inherent risk associated with the QDIA – for a target date fund, examine the glidepath, asset classes, and how the asset allocation can impact participants at different phases (accumulation, nearing retirement, at retirement, and beyond retirement).
3. Periodic Review
In addition to performance, risk, and fees, determine if any information used in the initial selection of the QDIA has changed. Consider fund manager, strategy, or objective changes, as well as if your initial objectives for the QDIA itself have changed.
Shepherd Financial is a fiduciary, in writing, for each of our clients. Our commitment to this standard permeates our fiduciary training, fund screening, and due diligence processes, because we believe in working together with plan sponsors and participants to help pursue retirement health.
There is no assurance the Fund will achieve its investment objective. The Fund is subject to market risk, which is the possibility that the market values of securities owned by the Fund will decline, and, therefore, the value of the Fund shares may be less than what you paid for them. Accordingly, you can lose money investing in a Fund. A plan of regular investing does not assure a profit or protect against loss in a declining market. You should consider your financial ability to continue your purchase throughout periods of fluctuating price levels. Please obtain a prospectus for complete information including charges and expenses. Read it carefully before you invest or send money. None of the information in this document should be considered as tax advice. You should consult your tax advisor for information concerning your individual situation.
Risk-adjusted performance is the performance of a security or investment relative to its risk. One may calculate the risk-adjusted performance in a number of ways. One may consider the investment’s volatility. Alternatively, one may compare its performance to the performance of the marketa s a whole or relative to securities or investments with similar levels of risk.
Investments in Target Date Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. The principal value in a Target Date Fund is not guaranteed at any time, including on or after the target date, which is the approximate date when investors turn age 65. Should you choose to retire significantly earlier or later, you may want to consider a fund with an asset allocation more appropriate to your particular situation. The funds invest in a broad range of underlying mutual funds that include stocks, bonds, and short-term investments and are subject to the risks of different areas of the market. The funds maintain a substantial allocation to equities both prior to and after the target date, which can result in greater volatility. All investing is subject to risk, including the possible loss of the money you invest. Diversification or asset allocation do not ensure a profit or protect against a loss. Investments in bonds are subject to interest rate, credit, and inflation risk.
A Balanced Portfolio is a portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
We work in an industry focused on finances and future planning – two areas that can cause great stress. Our team strives to minimize worry, provide resources, and help each client feel equipped to achieve success, but that can sometimes mean working in a state of hustle and bustle. As we enter November and turn our eyes toward Thanksgiving, we’d like to slow down and highlight a few of our many blessings here at Shepherd Financial.
We are thankful for one another. Knowing how much we need each person’s skills and gifts, we feel so fortunate to work together. Each team member cares deeply about our clients, each other, and producing consistent, high-quality work. In the three years that Shepherd Financial has existed, we have experienced tremendous growth, and it couldn’t happen without the whole team giving their all every single day. We continue to challenge and encourage one another as we take on new roles and responsibilities.
We are thankful for our growing pains. As our partners moved from solo practices into a true team practice, we experienced our share of struggles and setbacks. Each problem, though, has allowed us to learn more about one another, strengthen our team bond, and produce creative solutions – such as customized videos, extensive fiduciary training, and e-newsletters designed specifically for either plan sponsors, participants, or individual clients. Moving into our fourth year, we are seeing incredible fruit from our hard work together. Because we have been through these storms, our successes seem that much sweeter.
We are thankful for our role in the industry. Our work has been noticed and lauded by several elite industry magazines and organizations in the past few years, a testament to the many ways Shepherd Financial seeks to innovate, implement best practices, and lead the charge for retirement readiness and financial wellness. Our team depth has really allowed us to see particular needs and move quickly to meet them. We are also thankful for both our partners and competitors in the industry – we are seeing positive momentum in bringing awareness and resources to underserved participants.
And, of course, we are thankful for our clients. We simply would not exist without you. Because we have the opportunity to work with corporations and individuals across the nation, representing a wide variety of industries and demographics, we gain new knowledge every day to better serve each of you. Our team has adapted how we communicate with specific groups of participants, figured out how to navigate different challenges, and interacted with many amazing people. We are truly blessed to partner with you!
Here’s to a season and spirit of gratitude.
–The Shepherd Financial Team