INVESTMENT ADVISORY SERVICES

HCH COMPANIES, INC., INVESTMENT ADVISORY SERVICES

As an independent investment advisor, HCH Companies, Inc., and Ronald J. Harvey as an IAR (Individual Advisor Representative) bring investment advise on a truly objective basis. The tenets of their philosophy as to the investment monies belonging to participants in qualified plans can be answered by the following questions?

1) What is investment advice was available on a truly objective basis?

2) What if your participants were provided unlimited investment choices to choose from in their 401(k) accounts?

3) What if your 401(k) account provided unlimited trading with zero transaction costs?

4) What if funds selected offered revenue sharing back to the participants to offset plan expenses? In other words 12(b)-1 fees that traditionally go to the brokerage firms, banks or the bundled products of insurance companies were instead returned to the plan as an offset against record-keeping expenses?

To provide investment advice on a truly objective basis there must be what we in the industry call an “open architecture” investment platform. What we mean by this is that plan sponsors may select from one of the widest universes of investment options available to include in the Plan – mutual funds, collective investment funds, self-directed accounts or even company stock – as you, the plan sponsor sees fit. This selection must be free and independent of any product bias or constraint. In addition, you must have access to all asset classes regardless of which types of investment options are used in your plan.

Mutual Funds:

Through HCH Companies, Inc., Investment Advisory Services, you have access to thousands of publicly traded mutual funds. We will assist you in individually tailoring the plan’s line-up of fund choices to meet your Plan’s specific needs utilizing:

ü An “best of the best” fund selection process
ü Complete objectivity
ü No minimum fund representation requirements (or proprietary to external fund ratios) that must be maintained. It is common for some of the “group annuity contracts” presented by Insurance Companies and brokerage contracts by brokerage firms and banks to require a certain percentage of their own proprietary funds be included in the overall fund line-up. At HCH Companies there are no proprietary funds from which to select. Again, true objectivity in investment selection is absolutely paramount.
Collective Investment Trusts

Similar to mutual funds, “collective investment funds” (CIF’s) are gaining in popularity due to the fact that they offer advantages over traditional mutual fund. More specifically, they can offer:

ü Access to institutional private money managers
ü Purer “style consistency
ü Lower “total operating expenses

Though our affiliation with Hand Benefits and Trust Company, Inc., of Houston, Texas we can offer such collective funds to our clients. Hand was founded in 1939. They were founding members of the NSCC and are on the governing board of ASPA(American Society of Pension Actuaries). They bring a wealth of knowledge and experience in the collective fund field and can be of immense help in providing additional objective and non-bias services to our clients.

Self-Directed Accounts

For the more sophisticated participant, a self-directed (or brokerage) account option may be appropriate. Through this “window”, the participant may invest in:

ü Individual stocks & bonds
ü Mutual Funds not included in the list of funds provided in the existing plan
ü Any other ERISA-approved publicly traded security

A caution here in that self-directed accounts that are offered in a plan must be available to all participants alike, both “highly compensated and non-highly compensated” participants. To do otherwise (offer such accounts only to “highly compensated” employees would violate the “benefits, rights and features” section of ERISA.

Company Stock

Company stock may be used for employer contributions only or as a separate investment option.

Actively Managed Accounts

We must as advisors make an effort to reduce the fiduciary responsibilities and liability that a fiduciary bears when serving in that capacity for our clients. Actively managed accounts by an independent third party can provide a substantial amount of protection against potential liability on the part of the fiduciaries.

Our affiliation with Flexible Plan Investments, Inc., of Bloomfield Hills, Michigan allows us to provide this service to our clients. The service is discretionary on a per participant basis. The costs for the service while reasonable, are borne by each participant and is a percentage of his/her account. The plan does not incur any additional expenses as a result of the participant’s election and the participant gets the value added service of having an independent manager reviewing his/her account. This review is done on a weekly basis and changes are made as needed to maximize the return on investment. Flexible Plan Investments has been in existence since 1986 and offers those participants who need active management of their accounts a valuable service not normally found in accounts of such small size. As advisors we feel fortunate to have acquired this additional service for our clients.

What is Revenue Sharing?

Revenue Sharing can take many forms. Perhaps the most common are 12(b)-1 fees which can be marketing fees paid to brokers and/or other providers as an inducement to market the specific funds offering such fees. Finders fees are another kind of “revenue sharing” paid out to induce the sales of the specific funds. There are other methods of revenue sharing but suffice it to say whatever the form of payout is made it has a direct dollar for dollar reduction in the performance of the investments selected for your plan. As a plan fiduciary care should be taken in reducing such fees as much as prudently possible. While a 25 to 50 basis points 12(b)-1 fee may not seem like a lot of money in a small plan it is the future value of that money lost twenty years down the road that could have realized a considerable amount of gain for each specific participant. The loss of that revenue to the participant could in the right circumstances be considered a violation of fiduciary duty as it applies to investment selection.

As an independent investment advisor, HCH Companies does not participate in any revenue sharing that does not specifically offset plan expenses dollar for dollar. In many cases fund selection eliminates those funds that participate in any form of revenue sharing anyway. However, when a fund does pay out any form of revenue sharing it goes to the direct benefit of your participants as an offset against plan expenses.

As an advisor then, we are free to go out into the market place and select those funds who we feel are the best of the best and in the best interests of your plan and its participants. The objective at HCH Companies is to provide a better selection of funds with lower net expenses to the plan due to fact that we are truly objective and the fund expenses would tend to be lower with or without revenue sharing.