A User’s Guide for 401(k) Education v. Advice – What Fits Your Participants?

1. Get started.
2. Get the ‘free money’ through the match.
3. Automatically increase savings.
4. Instant portfolio through a simple risk or age-based investment option with reasonable fees.
5. Keep. It. Simple.

It has been our experience that as the participant’s balance grows, so does its relevance to that investor. Thus, they start paying more attention, likely due to the larger hard dollar cost to them from the swings in the market, as that 5% gain/loss is much more noticeable for a $50k account than a $10k account. It’s simply human nature. These types of situations have led to participants ‘diversifying’ their target date/risk fund, with the end result being multiple TDFs (target date funds) and/or other individual investments in the plan, typically top performers over the past one, three or five year period. The investment behavior issue has been observed by such institutions as Vanguard as well (page 54). Participants seem to have a keen understanding that TDFs are a great ‘starter’ solution, but they also understand that they are cookie cutter solutions, not personalized to them as individuals
Education no longer cuts it in this demographic of investors, as these investors have heard all of the ‘401(k) Basics/401(k) is Good for Your Future’ presentations. That is why they stop attending the education and 1on1 sessions. Why hear the same message that no longer applies to them. Thus, this is where we see individualized advice and account management being a desired solution by employers that have been observed these issues for years. Education must step up to include helping protect participants from making potentially ill-informed and emotionally based decisions and it should provide them the ‘answer’ specific to their individual situation.

• Education or Advice? Both. Education needs to evolve into behavior-based examples articulating how we respond to market movements as well as understanding savings behaviors during market fluctuations.
• Investment Solution/Participant Services – Target date or target risk funds, Personalized Managed Accounts/Advice

Large Balance Participants ($70,000 – $100,000+ Balance) – Participants Are Concerned and Expect More
It has become very simple in our experience. The larger the balance of the plan, the more desirable individualized advice and account management becomes. The biggest issue is participants’ comfort in managing large sums of money. The market movements cost them a lot now. They want specific advice/management detailed to their individual situation. They want to be kept informed, as the account is extremely relevant to them. The service should be ongoing, conflict-free, easy to understand and trust, cost effective, and high touch. While they may not trust the service at first, they often times will check with their friends that are using it to get comfortable and ‘give it a shot.’

• Education or Advice? Both. Behavior-based education regarding how we respond to market movements as well as understanding savings behaviors during market fluctuations.
• Investment Solution/Participant Services – Personalized managed accounts/advice become priority, target date/risk funds for those that want to avoid nominal fee.