Managing non-standard securities in 401kFiduciaryOptimizer

The Ask:

As you know, the 401kFiduciaryOptimizer, is quite a flexible tool where you can work with both audited and non-audited retirement plans. You can even run a full scale optimization even on a plan that doesn’t have any audited schedule of investments (Read up on how to do this on our separate case study here: Working with Non-Audited Plans in 401kFiduciaryOptimizer). When uploading a plan in our system, you can specify all the specific funds and other securities available in the plan. However, in this process, you may discover some securities outside of normal mutual funds (for example CITs, separate accounts or other annuity products. Luckily, we have the capacity to support all kinds of securities in the 401kFiduciaryOptimizer.

The Problem:

One of our subscribers came to us requesting assistance in running an optimization of a retirement plan of some smaller company with less than 30 employees. They managed to establish a preliminary contact with the plan sponsor, who provided the most recent fee disclosures and investment statements. Upon further examination of the provided documentation it turned out the plan assets, along with Vanguard funds, was also invested in American Funds target date and equity funds with specific Multi-fund Unit Class 3 share classes. Searching the official American Funds website for further details on UC3 class shares yielded no results, UC3 class share fund info is not publicly enlisted.One of the solutions would be to try matching some other share classes, like R share or F share funds to mimic the missing Unit Class 3 shares, but this would make the final report inaccurate and misleading both in fund names and fees.

The Solution:

Thanks to 401kFiduciaryOptimizer built-in Custom Funds management feature we can resolve this situation in a quick and convenient way. The Custom Funds Panel will help you to create a “virtual” fund with a custom name and expense ratio, based on any other publicly available  “parent ticker”, which could be a mutual fund, ETF, etc.The parent ticker will be used as a “proxy” with its historical returns used to represent the new custom fund.To get to the Custom Funds Panel simply go to Edit Plan section, and click the shortcut on the right from Add Symbol field, under the currently opened plan name.
Fig.1 Custom Funds shortcut in Edit Settings section.You will have the Custom Funds Panel pop-up on your screen with a list of all сustom funds currently added by you (Custom funds can only be used by you and no one else will have access to it). The columns here are pretty self-explanatory:
Fig.2 Custom Funds Panel pop-up.In Lineup column is used to add the custom fund to the plan original menu;Ticker – custom fund ticker, which is generated in the following format: USR_<parent ticker>_<custom Expense Ratio>;Name – custom fund name;Parent – parent ticker which is used for the historical returns proxy for this custom fund;Expense Ratio – custom expense ratio.To delete a custom fund, use the (6) gray cross button on the right (this action cannot be undone)Now, to start adding new custom fund to the list of available custom funds press +Create new Custom Fund button at the bottom of this window.
Fig.3 Add Custom Funds dialogueYou need to fill in the following fields:Parent Ticker – start typing a ticker or a name of a ticker, which will be used as a “proxy”. Once you start typing a drop-down with available choices appears, simply make your selection with your mouse (You have to select the ticker with your mouse).Fund Name – the name for your custom fund. It gets prepopulated with a name of Parent Ticker, but you can change it to your preferred name.Expense Ratio – add your custom fund’s expense ratio.Hit Create to proceed with creation of new custom fund, or Cancel to close this window without saving.
Fig.4 Newly added custom fund.Now your new custom fund is created and ready to be used in Fiduciary Optimization reports.You may proceed with utilizing the custom funds in several ways. You can use In Lineup checkboxes to select which funds to add to the original menu of currently loaded plan. Hit +SAVE button at the bottom right to add selected custom funds to the menu. The funds will be added with zero value, you can edit their values any time.
Fig.5 Custom fund added to the menu.You can also use Add Symbol field to add a custom fund to the menu. Simply start typing the name, or the ticker, starting with USR_ and select the fund from the drop-down list.
Fig.6 Custom fund addition through Add Symbol field.The custom funds can used as alternate funds for your proposal. On the Low Fee Alternatives report (works for other reports as well) hit the PLUS button and start entering the ticker (starting with USR_ ) or the name of the custom fund you would like to use as an alternative.
Fig.7 Adding custom fund as alternative fund in optimization reportsAs you can see, custom funds management in 401kFiduciaryOptimizer is a great feature which helps you with keeping your prospect plan proposals menus with up-to-date values and numbers, especially in cases when there is an uncertainty with the share classes used, or if it is a non-publicly traded security. The custom funds panel is very handy when running optimization reports for prospect plans that consist of different types of assets like private funds, collective investment trusts, stable value funds, and many others.The 401kFiduciaryOptimizer makes your custom funds management a simple routine that will not take much of your time. And keep in mind that RiXtrema’s Client Success Team is always happy to assist you with any step of the process for creation and usage of custom funds.

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