A Model for 401(k) Advice, Pt. 2 – Must be Ongoing

A fiduciary relationship is one which is continual, being responsible for conducting ongoing due diligence on the various provisions for which they are responsible.  A company fiduciary is charged with the responsibility of ongoing due diligence of the various fees, investment options, and vendor capabilities of the plan for the benefit of the participants. An ERISA fiduciary advisor, regardless of the “flavor,” is hired to provide ongoing advice to the employer specific to investment due diligence and advice, vendor benchmarking, etc. Both of these more traditional fiduciary roles are ongoing relationships. Why isn’t employee 401(k) advice?

You might say that your advisor is available whenever the participant needs help, but let’s face it; if you are working with an advisor for the plan or on your personal assets, your expectation is that if something needs to change, you expect the advisor to reach out to you, not the other way around. Right? The key to a successful engagement is a proactive, ongoing relationship…which I can tell you from experience is the expectation 401(k) investors have as well.

A Typical Advice Arrangement:

1. General Education Workshops – Discuss retirement and investment principles, as well as plan design and website navigation details
2. 1-on-1 Sessions Held – Review plan details and determine investor “personality” for risk, time horizon, age, etc.
3. Advice/Recommendations Provided – Participant typically must take action by logging into their account and transacting changes.

Seems reasonable, right? Here’s the catch:

• When a change/adjustment to someone’s allocation needs to be made, how is that done?
  • Face to face?
  • Email?
• Personnel Team: Does the firm have the infrastructure and resources (people if 1-on-1) to get in front of those participants receiving and paying for the advice?
  • Bench Strength: Is the person delivering the advice the same person that has to research and determine what advice to give? Is that realistic long term? How much “bandwidth” can they handle as individuals?
  • Delivery: What is the chance of getting back in front of that employee?
    • Field Personnel: Bringing in “field personnel” in an organized fashion, taking people “off the line,” or project managers in from their duties outside of the office is not exactly an easy request.
    • Office Personnel : Even getting in front of office people consistently can be a challenge, as some simply do not want to meet that often.

So, that leaves a big question:

How can 401(k) advice be efficiently delivered when market conditions change, and thus the asset allocations do as well?

There must be a system in place to deliver it. Period.

If not, the value of the advice has to be called into question. The cost. The effectiveness. The impact on investor results. Everything.

An Efficient, Effective Advice Arrangement:

1. General Education Workshops – Discuss retirement and investment strategies, focused on the impact of behavior instead of investment returns of various funds
2. 1-on-1 Sessions Held – Review plan details, determine investor “personality” for risk, time horizon, and age, and discuss savings strategies to increase contributions
3. 401(k) Advice/Management Provided – Advice could be delivered at point of 1on1, with the expectation that ongoing advice/account management will be conducted and communicated throughout the year via email/hard copy communications.
4. Ongoing Advice/Management – Throughout the year, the participant will be kept informed of how market movements are affecting them as a way to help manage investment behavior. Additionally, if changes should be made, they are proactively communicated to the participant at what should be (advice) or has been (account management) done. The frequency of these communications would be sent at least quarterly, which is a SunAmerica Opinion best practice.

In summary, markets change, as does asset allocation, which is responsible for 91.5% of investment returns. When someone is expecting a firm/individual to keep an eye on the market and adjust their allocation as necessary, the ongoing relationship is easily understood not only from a fiduciary perspective, but from a human expectation.