Avoid Asset Managers Looking to Manage Your Airline 401k

At Wiser Wealth Management, we design custom financial plans for many airline pilots. We have started to see other firms beginning to enter the same space. They claim to specialize in airline pilot 401k plans. Recently, we came across a firm that’s offering to manage brokerage links for a fee. A brokerage link is connected to the 401k, and it means you’re moving money out of the plan into this brokerage account, but remaining under the 401k umbrella. However, professionals are the ones managing it. Let’s take a look at this company’s approach: 

Brokerage Account Costs vs 401K

If you move money into a brokerage link and hire an asset manager to manage your money inside your airline brokerage link, the first thing you have to remember is that the major airlines already have low-cost 401k plans. At Delta (and most other airlines), the average cost of the portfolio is around 0.03% per year, which is very inexpensive. Mutual fund fees or ETF fees are going to be much higher than an airline’s 401k plan fees. The average expense ratio is about 0.75% for actively managed stocks and bonds and then add a management fee of maybe just 0.5%, although some fund companies are charging 1.0%.

Suppose someone is 24 years old and gets hired at Delta Airlines as a pilot, and he or she works until 63. If they max out their 401k every year, and considering the airline’s hefty 401k plan contribution, they would accumulate close to 10 million dollars in their 401k plan (in theory). If they hired someone to manage their 401k plan and pay them a 0.5% percent fee, they would end up paying over 2 million dollars by the end of their career between asset management fees and the excess fees for being in a brokerage link. Is that worth it?

401k Plans Can Beat Asset Managers

While some may argue that brokerage links have the potential to have a better yield than the 401k plan, statistics show otherwise. Looking at the data from the last 15 years, we know that only 6% of fund managers have beaten the S&P 500 over that time period. If we take a look at the 20 year report, only 2% of fund managers beat the S&P 500 over that time period. If we look into other asset classes outside the S&P 500, the percentages are even lower. In summary, this path turns out to be very similar to a gamble. Would you bet $2 million dollars on a specific asset manager, for a very slim chance of beating what’s inside the 401k plan?

401k Allocations for Pilots

Although brokerage link management might seem like a good idea, we have done the math and it doesn’t seem to pay out in the end. This is why we have put together 401k allocations for most of the major airlines and have them available for free on our website. You can download those by clicking here.

Have more questions? Contact Us

Casey Smith
President, Wiser Wealth Management

Click here to schedule a consultation with one of our financial planners.

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By Published On: April 14, 2023

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