Business Innovators Radio - Interview with Fred Cook, Partner & Wealth Advisor with CAVU Financial Discussing 401K Strategies

Episode Date: October 1, 2023

In the Financial Services Business for almost 40 years, Fred has spent his career in Banking, Insurance, Investments, Financial Planning, and Wealth Management. While most institutions look at these disciplines as competing, Fred deeply understands they all need to work together in his client’s financial lives.In order to have the independence needed, and the resources clients demand, he has aligned himself with CAVU Financial. What brought him to the team is their mission. Managing Partner, Blake Rawson, states the mission consists of “partnering with clients to create and deliver the best, objective, independent recommendations for their financial success”. This allows Fred to focus his talents and experience on providing holistic advice, within a “concierge-sized” practice.Throughout his career, Fred has developed a style that puts the client first. He listens to their concerns, goals, and hopes, as he attempts to understand where they are today and where they want to be tomorrow. This empathetic approach has allowed him to develop deep bonds with his clients and their families. Advice is then driven by a planning and service model that identifies issues, aligns recommendations, and delivers strategies tailored to each of his clients. Fred strives to be the first person clients call when life changes happen.In addition to his experience, Fred has a Bachelor of Science in Business Administration, Finance, and an MBA from the University of Akron.Over the years, Fred has taught University level courses at the University of Akron, was a speaker at many local organizations and radio on the topics of investments, the economy, and planning, and was the featured speaker at a large financial services firm on the topic of financial planning for individuals.Because of his loyal clients, Fred’s practice has grown over the years due to their enthusiastic introductions to friends, family, and associates.Fred is past Chair of The University of Akron, College of Business, Department of Finance, Advisory Board. He has also been involved with several charitable organizations such as the YMCA, Boy Scouts, Rotary, Hudson High School Music Association, and others.A lifetime resident of Summit County, Fred and his wife, Arlene, live in Hudson, Ohio with their daughter, Allison. He enjoys his family, reading, and traveling.Learn More:https://www.cavufinancial.comSecurities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Partners, LTD and CAVU Financial LLC are separate entities from LPL Financial. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Tactical allocation may involve more frequent buying and selling of assets and will tend to generate higher transaction cost. Investors should consider the tax consequences of moving positions more frequently.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-fred-cook-partner-wealth-advisor-with-cavu-financial-discussing-401k-strategies

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of influential entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with us Fred Cook, who's a partner and wealth advisor with Cabu Financial and we'll be talking about 401K strategies. Fred, welcome back to the program. Hi, Mike. Thank you. Hey, I know 401K strategies could probably be a weekend seminar, two and a half days,

but we're going to pack it into a nice conversation here. So kind of get us started with what are your thoughts around 401K world? I know that it's not wrapped up in a nice pretty red bow and really easy to, you know, follow the steps and check the boxes. So there's tends to be a little bit of mess in the 401k world. What do you mean by that? Well, Mike, we're going to get into that, but I have a little bit of housekeeping. I got to keep the lawyers happy.

But it's important. I just want to mention it's a disclosure. Our firm, Cavoo Financial LLC, offers securities through LPL Financial, which is a member of FINRA, SIPC. Our investment advice is offered through Stratus Wealth Partners Limited, a registered investment advisor. And Stratus Wealth Partners Limited and CAVU Financial LLC are separate entities from LPL. PL financial. Also, any comments that I make here today are general and not intended to provide ERISA, tax, legal, or investment advice. Now we have that out of the way and we can look at. Now we can talk. Yeah, now we can talk. So, okay, what do I mean about the mess? Well, but I'm going to,

just for a second, Tony Robbins, in his excellent book, Seven Habits of Highly Successful People, talks about a preliminary habit to success, which is seek first to understand. Now, I don't know how much today we're going to get into fixing the mess, but let's look into what the mess is. And just to clarify, when we talk about 401K plans today, we're also talking about their brethren, which is the 403B plan,

and a 403B plan is a plan that's set up for a nonprofit. So we'll say 401K, but we really mean both. So let's start at the beginning. Back in the day, employees worked for the same company for their careers. And then they retired with a nice pension. Now, combined with Social Security, most were able to continue to enjoy a lifestyle they had become accustomed to prior to their retirement with a steady retirement income. Well, as you know, Mike, those days are gone. Now, for the most part, unless you work for the government or some one of the few companies that still have a pension, chances are you don't have a pension plan where you work.

and even if you did, for the pension to have any real value, you would have to stay with that employer for many years, and people just don't do that anymore. So in comes the 401k. Now, today, the 401k plan represents what employees have to live on in their retirement. Oftentimes, that 401k plan is their largest investment asset, and oftentimes their largest overall asset, even bigger than their home value. Now, think about it. For most people, it's their largest asset, and it's the one that can have a lasting impact

on their future livelihood or their retirement. Mike, what possibly can go wrong? You know, it kind of makes me think of the phrase, all of your eggs in one basket. I know that it's not all of the eggs, and I know it's not just the one basket, but if it's a major percentage of that, if it's the largest asset, and if it's the biggest indicator of how you're going to retire well, that to me says you need to make sure that you have clarified and verified and understand and have all the inner workings because you can

need to make sure there's no toxic issues within that 401K. So that's a really great point. I like how you started off with seek first to understand. Well, I think that most people can barely spell 401k. They certainly don't understand all the intricacy. So I guess what I would say, Before we move on, talk a little bit about the import, the importance of realizing when someone realizes that the 401k tends to be their biggest asset and the biggest lever in their retirement. How does that set with them? Well, you know, the thing about it is, is that as anything in life, when you, when you try and get something done, I don't care what it is, you can make a small little mistake, something that you're not even aware of is an issue, right? And that can reset. Think of it as a rocket ship taken off.

And it's off by one-tenth of a percent for whatever reason. It's not going to make it where it wants to go. So that's the issue that I see. That's the kind of what people that I talk to, that's where they're concerned. They don't know what they don't know. And they also understand that it can have a big impact. So, you know, I think really we should spend a few minutes

here and go over what the problems are. I think this will help uncover what the issues really are. Yeah, because in reality, once someone realizes that this is like pretty much the biggest lever in their retirement, well, now tell me what I should be aware of. What are some of those problems and concerns? Yeah. Right. Well, I kind of put together here seven items that we should be thinking about with our 401K

plans. And the first one is portfolio investment risk. Now, in our last podcast, we spent some time discussing the risk within any investment portfolio and how to protect that portfolio against those risks. And those points are just as valid for a 401k plan. The second one would be self-management. Let's say you want to manage your own fund.

And this is quite frankly what most people do. Do you have the knowledge to know what to do? Most people don't. But let's say that you do have the knowledge. I've worked with several very strong, smart folks over the years that learned what they needed to do to properly manage their own 401k plan. They figured out what funds to use. They figured out what risks they were taking, what allocation they should be using. But here's the rub. They're not investment folks. They were doctors,

lawyers, mechanics, business owners, whatever. They had busy lives. So time went, time went by, and now they have to relook and relearn everything about their plans. Also, the plans change. Funds are dropped, funds are added. They add different provisions. So what these people had found out is that while they know what to do, they just don't have the time to manage their own 401K. The third one would be the plan sponsor.

I call this the no help. You're kind of on your own. What about the plan sponsor, the company that you work for? much help do they provide? Well, very little, if any. They're not even allowed to make recommendations. You know, you're pretty much on your own, Mike. Now, add to this that most plans are poorly designed, giving limited choices for investment assets. In our house, we grade 401K plans, and it's amazing how many end up with a C, a D, or an F. I actually have one client that has two choices for his equities in his 401K, the S&P 500 and a foreign fund.

And that's it. It's amazing. The fourth thing would be planned design. Most plans are poorly designed. They were done a long time ago, usually. They have limited choices for their investment assets, what we just talked about, often don't offer a Roth option.

Okay. And there are other design flaws, things like no-in-service withdrawal, loan provisions, poor matching percentages, etc. The fifth item would be, let's talk about it. Several years ago, the 401k industry attempted to solve all these issues that I just mentioned by introducing target date funds.

Now, this made it easy. You just pick your retirement date and you buy the fund for that year. And what was happening inside that fund is the fund manager then would allocate your money assuming you could take more risk the farther away you were from retirement. even if you aren't willing to take that risk. Then as you work your way towards retirement, the manager would lessen the exposure to equities, stocks, and increase the exposure to bonds and cash. Now, here's the issue I found with that, and this is a hidden risk.

The risk inside these funds at any point in time is usually not the risk the client is willing to accept. A great example is recent. if someone was nearing retirement, let's say they wanted to retire near the end of 2022, okay. And because they had a large exposure to bonds at that time, the fund kind of got them more into bonds and cash, but they still had a healthy exposure to stocks, saw the value of their account declining by as much as 25% from the beginning of 22 till September of 22. Just think how excited they must be right now. Yep.

And then the sixth thing is you have to as an individual make complex decisions with these 401K plans. And they have a lot of moving parts, like the impact on taxes, so on. So what type of contribution should you be making, a qualified or a Roth? And then the big one, and we talked about this the last time, how much should they be putting in to their plan? And that's all based on what their goals are and what they want to accomplish in life. And then the seventh one, and you and I spent some time talking about this, is leaving a 401k plan with a previous employer. You know, this is a big issue. Most folks change jobs.

I mean, it's proven. They changed jobs several times. And they leave their 401k with their prior employer. What is that? What happens when they do that? Well, they have a lack of control and flexibility. When you leave your 401k with an old employer, you have less control over your investment choices. The options are limited to those that are offered in that plan.

The second one, and this is one of those hidden risks, is a risk of neglect. We see it all time. People forget about the account. They lose track of it, particularly if you change jobs multiple times during your career. There's a potential for higher fees. Also, the company could have some instability. That's another hidden risk. What if the company goes bankrupt or undergoes a significant organizational change?

it could potentially affect your 401k plan. And then lastly, is the difficulty with managing multiple accounts. If you change jobs several times and you leave your 401k account with each employer, it can be a challenge to manage multiple accounts. It's enough of a challenge to manage one of them. Yeah. You know, you mentioned many, many problems, risks, things to keep in mind that one of those last ones you just mentioned brought up a question for me,

like if you left 401k behind with a previous employer, which these days you don't get out of college, work for a company for 30 years, get the gold watch and retire. These days you're moving around changing jobs, changing industries even. So if and when that happens, you've got maybe one or two 401Ks,

you know, kind of in your background with other companies. Could a company change their 401K plan administrator? And you don't know. You get some paper in the mail and it's like, I don't even know what this is, but if they did that, then that could even enhance some of the issues you were mentioning, right? Where it's like not only are there limited this or that, but just having that change from an old employer and you don't understand them, that could be an added risk. Companies change their providers all the time.

They don't like to because it's very complicated and it's hard to do, but they do. And when they change the provider of the plan, everything changed. changes. The whole plan design, all the things that you thought you knew about your plan go out the window, all of the investment choices and options change. And a lot of these companies will put a default in there so that if you don't go in and, you know, tell them what you want to do with the money when it goes over to the new plan, they'll just put it into a default type, an account so that it's invested. And you're right. That's a huge problem. And you'll get something in the mail or an email or something. about it if you even think to look at it. But then now you've got to go back and figure out, well, how do I sign on to this one now? And how do I get involved in that? And it's a big issue if they change the plan sponsor. Sure.

You know, through what you were talking about with some problems and issues to be aware of, my mind started just spinning going, how do you, no, no employee, no plan member, there's no earthly way that someone is on top of all this. It's kind of like the 50,000 pages in the IRS tax code. How in the world is a business owner supposed to understand that or a consumer? So I'm going to ask what can listeners do, but I'm going to phrase it through the lens of who do you trust? If you have a 401K and you understand that there's all these questions and things to take into consideration, do you call 1,800, your 401k administrator and trust that that person answer the phone is the one that really knows all the intricacies and what's best?

to you. So what can listeners do? Well, you know, that's always the million dollar question. And I'll tell you what listeners are doing, okay, people out there. They do what all of us do when we have a problem. We go to the internet, right? And you start looking up stuff on the internet. You try to figure it out there. A lot of other people, if most will do this, they'll go to their, they'll look at their plan. They'll go to their website. And they always have lots of different things in there about it. And they'll try and figure things out that way. So, so, you know, that's what people are doing for the most part that, you know, talk to their coworkers over, you know, over a cup of coffee about it. And, and, you know, that isn't going to get people where they want to go.

And it's very difficult to trust what you see on the Internet, depending on what, where you're looking, that type of thing. So a lot of people will choose someone to, to help them, you know, an advisor, if you will, to actually help them with their, financial plans. We see that all the time. But you're right. It's it, it's very, very tough to, to determine, well, who you're going to trust, right? So, so what I did to just for the podcast here is rather than me telling your listeners what they should do, okay, I went out and looked around at what are other professionals saying. What are what are the pros telling people to do with their 401K plans to keep them on track. And I'm going to share what those points are.

I know what I would do, but I think it's neat to look at kind of what are the main points that come up when you go to other professionals out there. And the very first one is from Ramsey's solution. And he basically says that, in which we've said, the first step is to understand your 401k plan document. Get a hold of that document because it'll, it'll outline the investments that are offered. the associated fees and other important details. You know,

knowing what's available helps you make an informed decision. And I don't, I would challenge people, how many times have you looked at your document with your 401K plan, if it ever, you know? It's like six inches thick, right? I know.

Yeah. And I, it's even hard to find it, you know? I mean, when you go, like you go into the plan, it's difficult. And so,

but, so I would think that's a good starting point, right? Let's just, like we said, figure out what you got going. one there. The second thing is CNBC brings us this one. Financial advisors often recommend using a formula to determine their asset allocation. Now, the result is a percentage of your portfolio that

should be allocated in stocks with the remainder and more conservative investments like bonds and cash, right? Now, this is not what I would recommend. It's what CNBC is doing. I would go back to the prior podcast you and I had where I discussed calculating the risk associated with an allocation and then make sure it aligns with what your capacity for risk is. So, but that's sort of where CNBC was coming from. And the third thing would be, this is from a company called White Coat Investor. And they basically say that diversication is crucial for managing risk. This involves spreading your investments across a wide variety of asset classes. to reduce exposure to any single type of asset.

And that's where our grading system comes in because, as I mentioned, that one client only had two for their stocks. Yeah. You know, it was hard to do that diversification. The fourth one would be, this is from FINRA, so it kind of makes sense, is you need to understand the fees inside the retirement plan. The retirement plans come with various fees that get buried in there that can impact the overall performance. of your investments. So it's important to understand those fees and how they affect what your potential returns are. The fifth ones from Schwab. They basically state that you need to regularly review your 401k and make adjustments as needed. Changes in a financial situation or goal may necessitate

adjustments to your investment strategy. You know, things change. Life changes. And what you thought was good five years ago may not be so good today. And then the sixth one, is consolidating retirement savings. This comes to us from Morgan Stanley. You need to consolidate your retirement savings into a single account. And that can help simplify the management we talked about and provide a clearer picture of what your overall retirement savings look like. I'd like to add here, Mike, that some people will roll their 401K plans, their old 401K plans into an IRA. Now, there's nothing wrong with that.

Okay. And that might be a good thing to do. do, but it may not be the best choice for a variety of reasons. For example, you can oftentimes borrow from a 401K. If you roll it into an IRA, you can't borrow from an IRA. And also, when you set the thing up, it's got to be set up in a certain way. And these IRAs, and they oftentimes don't. You'll mix money from other IRAs in there.

So you need to know what you're doing if you're going to roll it over to an IRA. So basically, that's the, those are. are the, those are kind of the six main points that I was able to uncover out there in the market. Yeah. Yeah. So, uh, the problems are easy to understand. The next steps are crystal clear.

I mean, obviously with anything, like I jokingly said about the, the 401k plan is, book is six inches thick. However thick it is, it's, it's in like language that is not simple to understand. So having someone that can help help you, you know, work you with. through it and consider options. Maybe that's where you can help out, you know, someone to go. Let's take a look at it together. So what else?

Let's wrap up, wrap up here with this talk about problems and what they can do. Is there something that you even could come alongside? Because I know that as a financial professional, you don't get paid for someone, uh, uh, their 401k plan. That's, that's external to what you do. But you could probably give some insight on some guidance this way just to help out, right? Right. We help our clients all the time.

You know, in addition to helping people manage our money, we also offer financial advice. We're financial advisors. And in that world, we can oftentimes help our clients manage their 401K, if you will. And any kind of fee that we would earn, we would get it through the planning process that we do. But the, you know, I think kind of, and you keep leading to it, I don't feel that we've really given solutions. We've talked a lot about what the minefields are.

We've outlined all the issues. Hopefully, we've created in our client's mind a sense of these things are more complicated than you think. You don't just X the box. I want to put 6% in and you're done. I think if we can get that accomplished today, that was good. What are the problems? Understand them. You can't fix what you don't know.

but by a way of, I guess, thanking you, and this is sort of something that you just mentioned, you know, for inviting me on your podcast here, I can offer a complimentary report to your listeners where we actually analyze their company's 401k plan and give it our proprietary grade. Additionally, we will analyze that capacity for risk for that client and provide them with the risks that they're currently assuming in their 401k as it's invested today. It'll really give them a good feel for whether or not they're aligned risk-wise and whether or not their 401k plan is really going to give them what they need. It'll also, I think, this is just me, I think it'll jog these people to if they've got other 401K plans out there and around in several different places, it'll kind of focus them on maybe getting them combined, you know, getting them all in the current 401K. So all they really have to do is go to cavoofinancial.com. Now, Cabo stands for sealing and visibility unlimited, but the address is cavoofinancial.com. And right in the middle, there's a big box.

It says, what's your number? Click on that. And we'll get their risk capacity answered by doing that. And then on the follow-up, I'll reach out, and I'll get the information I need to analyze their 401k plan, grade it, and provide them the risk in their plan as it's invested today. I think if we do that, most listeners would be amazed at what they will uncover. It's a very generous offer, and I think that really, really will help bring some clarity to the questions that we brought up.

So very generous. Thank you. And we'll make sure that your URL is in the show notes, so people can click right on it. But thank you so much, Fred. I really appreciate you coming back on. It's been really enlightening learning about intricacies within a 401k. Mike, it's been a pleasure. Thank you for having me. You've been listening to Influential Entrepreneurs with Mike Saunders.

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