PSI Newsletter and Website Header 10.2.15By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC

Recently, a number of market observers have suggested banning mutual funds using active investment management from 401k plans as a way of increasing participant balances. Their logic is that mutual funds using active investment management don’t beat market averages or benchmarks often enough to justify their higher fees. Also, it is said that funds using active investment management tend to be recommended by advisors who profit from their sale and therefore aren’t objective.

In certain situations, all of these comments may be true. However, there are good reasons for investors to embrace active investment management including:

1. Active investment management allows exit from falling markets quickly

Probably the most important component of active management is that there is a manager who can extract a portfolio from a falling market to avoid significant loss. Remember that the number one rule in investment management is “Don’t lose my money!”.

2. Index performance in every market

Index investors capture 100% of every down market move. Don’t like being assured of capturing all of the next equity market free-fall? Just keep in mind that your gains when the market turns will be limited by the index you have chosen. You have no chance for outperformance or portfolio adjustment to take advantage of changing market conditions.

3. Markets are inefficient

Good portfolio managers exploit the inefficiencies inherent in markets. During every crash the market oversells because the world is coming to an end this time for sure. In every bull market buyers get carried away with irrational exuberance and push securities well beyond what they are worth. Taking advantage of these inefficiencies is how good portfolio managers make money for their clients.

4. Not every investment adviser is conflicted

Many investment advisers are required by their employers to offer proprietary products first. There are advisers who push products, regardless of performance, which pay them and their firms the most money. You don’t have to work with them. There are many independent, objective investment advisers who can help you who objectively recommend the best performing actively managed investment options.

5. It’s the American way!

We like to beat the market. We aren’t residents of a Soviet bloc country content to receive index performance each year. As Americans, we want to do better. It is in our competitive nature to expect above average from everything in our lives.

It makes sense to use a blend of active management and passive management in each of your portfolios. If that is not how you are currently investing, consider talking to an adviser soon.


About the Author
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or

About Lawton Retirement Plan Consultants, LLC
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or or visit the firm’s website at: Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.