More Plan Sponsors Crossing the Line from Education to Advice – CFO.com
Since 401(k) plans were created, education was seen as a way of “moving the needle” to help participants make better investment decisions and improve plan participation. Does education help make investors investment managers? Let me share an example. My father, a farmer, can explain exactly why he does things so to produce the best yield for his crops, and it will make perfect sense during the conversation. Ten minutes after that conversation, I would not remember 60% of what he said. “So he said to plant the beans when?” You get the idea. The same goes for expecting education and guidance to drive change in 401(k) investors, as vast majority do not have the time, desire, comfort, and/or understanding to properly manage their portfolio. The answer? Advice.
Companies are moving to Plan B, getting away from an education-only approach to providing personalized advice and account management (also know as managed accounts). Education hasn’t lost all value; instead it is appropriately complimented with “the answer,” delivered as investment advice for the participant to put in place or account management that is done for them by a professional investment manager.
Plan A (Education) :
Action: Educate/guide investor on what they can do.
Result: Little to no action or impact made with high cost of fees and time lost to the participants and employer
Plan B (Education + Advice) :
Action: Education with “the answer,” specific to the investor’s individual situation and circumstances (age, time horizon, risk tolerance, other assets, etc.)
Result: Better asset allocation, risk management, contributions and participation via ongoing advice (one time advice doesn’t cut it – it must be ongoing to be a fiduciary relationship and an effective)
If you want to add advice to your plan in a conflict-free manner without having to change your provider, click here to learn more. Additionally, a future post will provide you questions you should ask before moving forward with offering advice so to protect your employees and the plan fiduciaries.