401k Spotlight: Q&A with Pat Church

April 8, 2014

Patrick Church, of Church Capital, was kind enough to share his insights into serving the 401k market with the following Q&A.

Q (AH): Please give an overview of your background in the industry.

A (PC): I started out in the finance industry in 1983 right after college selling life insurance for Northwestern Mutual Life.  Shortly after joining NML, they bought a regional broker dealer named Robert W. Baird and added the ability for insurance people to sell investments.  Myself and another individual in the insurance agency gravitated toward the investment side of the business and I sold my first retirement plan around 1985.  I continued with the big agency philosophy at that time of being the overall financial planner who could help with “all of your needs” from insurance to investments.   I found this to not be very satisfying in not developing any area of expertise.   In 1998 I decided to make the 100% focus to act only as an investment advisor and joined a mid- sized independent broker.   The timing of that was a little rough with 2000-2001 just around the corner.  That tough period made me realize I needed to develop an approach to the business I could rely on in good times and bad.  I was at a conference where Tom Dorsey spoke.   I took his book back to my hotel room and read it over the weekend and have been a proponent of DWA since.  I focused with the DWA approach primarily with IRA rollers until 2008.   It occurred to me around that time that people who roll money out of retirement plans receive pretty good advice but the solutions while in a retirement plan lack sophistication.  I began looking at ways where I could bring in the DWA strategies to 401k plans in 2009.   I happened to stumble upon a young ERISA attorney at the time, Jason Roberts, who has since become one of the industry’s more highly regarded ERISA consultants.  He suggested to me that I act as an ERISA 3(38) fiduciary and create DWA investment models that 401k participants could choose as alternatives to mutual funds.   I had some good success in bringing in plans utilizing the feature of adding “managed accounts”.    As my managed accounts evolved over the past several years, I began to add ETF’s as the source for model management.  Last year I decided, based on the growing interest of ETF managed accounts, to register my models as Collective Investment Trusts and make them available to any 401k platform. Dorsey Wright acts as the sub-advisor to the two Collective Investment Trusts.  My role now is simple in that I am responsible for marketing the funds to plans, advisors and third party administrators.

Q (AH): How well do you think 401ks are doing in preparing people for retirement?

A (PC): I think the 401k providers are adding better features all the time to help people track where they are and what they need to do to accumulate the right amount but there is still a pretty good void in the area of providing specific advice to participants.  For example, the advice tends to be very generic when explaining stock/bond allocations.   Most participants have under emphasized  small cap exposure over the past 15 years due to conventional wisdom 401k advisor direction advocating “safer” large cap equities.    Since 2008, there has also been significant poor allocations with the international exposure to emerging markets while developed (European) stocks have been in a long, good performing cycle.   We can do a better job with specific advice.

Q (AH): Describe the reasons that you chose to focus on serving the 401k market.

A (PC): I see an area of opportunity for myself and other advisors with 401k plans to begin implementing the same kind of evolved managed accounts that people are receiving on an individual basis.  My discussions with plan sponsors and advisors to provide better asset allocation solutions than products like target date funds are an area of high interest.  When I look at my 401k plan data base of 5500’s, there are plenty of quality funds on menus but the actual performance of participants is disconnected from fund performance.   The reason is that people do not have the expertise to re-allocate in sync with market cycles.   Something like 80% of participants never log on to their accounts.

Q (AH): Why did you choose to incorporate Dorsey Wright’s relative strength strategy in your Collective Investment Trusts for 401k plans?

A (PC): I believe the strategy is very much in sync with what 401k participants want, which is a long term reliable process of managing the investment markets.

 Q (AH): What should other financial advisors know about how they can get involved in serving the 401k market?  

A (PC): I think the first thing an advisor should know is that the industry is moving to a fee based structure.   If you are not already converting your business to fee based, it would be prudent to do so.  The key is to make everything transparent and simple for the plan sponsor.   I think there is an interesting opportunity to talk to new plans about an area they have not likely been exposed to yet and that is ETF Managed Accounts.   We have put together a careful well thought out asset allocation strategy with the Dorsey Wright ETF Global Growth and Dorsey Wright ETF Global Balanced funds.  We are an option for investors looking to replace a series of target date funds. I think the last thing to mention is that there is a well established history of how an advisor serves a 401k plan to show value and one of the main functions has been to monitor the mutual funds.   Statistics are starting to surface that show the funds that are replaced by advisors don’t necessarily provide value to participants.   I think an advisor who approaches a plan sponsor today might use a different tactic of  setting up the plan with low cost index funds with some managed account options and focus on getting specific advice to participants.

To learn more about Church Capital, please click here or call Pat at 253-797-0218.

Pat Church

Patrick Church

The opinions expressed herein are that of Patrick Church and Church Capital LLC and do not necessarily represent that of Dorsey, Wright & Associates, LLC.

 Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any se­curity. This report does not attempt to examine all the facts and circumstances which may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security or strategy in question is suitable for their particular circumstances and, if neces­sary, seek professional advice. The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  Relative Strength is a measure of price momentum based on historical price activity.  Relative Strength is not predictive and there is no assurance that forecasts based on relative strength can be relied upon.  

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401k Spotlight: An (Enlightened) Alternative to Target Date Funds

March 24, 2014

Of the approximately $12 trillion of employer-based retirement plans, over $500 billion is now in target date funds.   The opportunity to show value to a plan sponsor by analyzing asset allocation solutions may be the source of credibility that wins a plan for the 401k advisor.  Target Date Funds are based on the notion that an increasing shift to bonds over time will produce the ultimate asset allocation solution.    In fact, it is implied by the labeling of the target date fund that all one must do is select the year in which they desire to retire and plug in a computed savings level to reach the magic number.     If nothing else, give the financial institutions creative credit for deflection marketing by providing a series of product such as: 2025, 2035, 2045, and 2055.  The labeling presumes accepted strategy and steers focus toward the desired end result.

Dynamic Asset Allocation

A quick browse into the Fidelity Freedom Funds website (Fidelity’s target date series) shows a caption of “Dynamic Asset Allocation”, which is then defined as the gradual glidepath away from stocks and toward bonds and short term notes as retirement nears.  Those of us who use the phrase dynamic know it to be a little more comprehensive than a simple shift from stocks to bonds.    Further, the primary premise of target date funds is put into much different perspective by  Robert Arnott, author of “The Glidepath Illusion.”    He points out that the rebalancing within a static allocation significantly outperforms a gradual shift from stocks to bonds.  Specifically, he maintains that adjusting the risk profile within stock and bond portfolios rather than across  asset classes reins in risk more constructively than glidepath solutions.

Dorsey Wright ETF Global Growth and Dorsey Wright ETF Global Balanced Collective Funds

Fee based 401k advisors:   If you are a fee based 401k advisor charging fees on plan assets or flat fees, you may wish to consider the Church Collective funds two ETF asset allocation solutions.  It is a way to educate plan sponsors about the value of relative strength and implementing it in a unique way via an asset allocation strategy.   Not only are these great solutions to play a part in a participant’s overall portfolio, they serve as a more comprehensive option than a single selected target date fund.   There are few plan sponsors who have been explained the logic of having the asset allocation risk managed within the asset class rather than across asset classes.

The Church Capital ETF Global Growth and Church Capital ETF Global Balanced has hired Dorsey Wright & Associates as sub-advisor for these relative strength-driven ETF asset allocation funds. They are currently available on the following platforms:

Frontier Trust
TD Ameritrade
Wilmington Trust
Mass Mutual
Reliance Trust
MG Trust Company

Collective Investment Funds

CIF’s are specific to retirement plans only and registered under the banking regulations enforced by the office of Comptroller of Currency, which is part of the U.S. Treasury. CIF’s are issued cusip numbers and trade over the NSCC. CIF’s are created and administered by trust companies. The Church Capital funds use Altatrust, Denver, CO as their trust company. CIF’s are a natural fit for ETF money managers such as Dorsey Wright because they allow for unique strategy flexibility and inexpensive to create and manage.

These funds are portable to any 401k platform and Altatrust continues to complete new agreements with various 401k providers. In addition to making relative strength strategies available to any 401k plan, Church Capital and Altatrust provide a side benefit to plan sponsors of these plans by signing off as 3(38) fiduciaries for the management of these funds.

Church Capital ETF Global Growth, Global Balanced (QDIA)

By providing two different ETF asset allocation funds, the majority of 401k participant risk profiles can be met. Each fund retains a static asset class allocation, but provides the dynamic relative strength rotation management of ETF’s within the asset class allocation.

Click here to view the Church Capital brochure for more information.

A relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  Past performance is no guarantee of future returns. Potential for profits is accompanied by possibility of loss.  Dorsey Wright & Associates is the sub-advisor for the Church Capital ETF Global Growth, Global Balanced CITs.

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