PANC 2014: Participant Advice

The biggest fear for just over half of Baby Boomers (54%) is that they won’t be able to retire when they want to, according to research cited by Phyllis Klein, senior director of the consulting research group of CAPTRUST Financial Advisors, who moderated the panel. More than half (57%) are trying to find an easier way to choose investments, she said, and 61% want personalized advice. People who do get advice save an average of $1,100 more per year in their retirement plans than those who do not get advice.

“There is a desire for advice and, at same time, it is working for them,” Klein said. “Most people (88%) who received advice were properly diversified for their risk tolerance. So you are getting them properly diversified and you are getting them to save more — it’s probably going to work.”

The key differentiator for investment advice (and not education) is making specific recommendations on specific investments, according to Michael Webb, vice president,  Commack Retirement Group. “Education is more general,” Webb said, but not everyone—especially participants—is clear on the difference, he said.

Some participants ask the provider to tell them what to do, and ask for a do-it-for-me approach from the investment advice provider — a concrete example of advice, Webb said, while education answers the participant who says, “Give me the tools to make the decisions so I can make the right investments.”

Can the average participant distinguish the two? In most cases, Webb said, “No chance. Most people getting education think they are getting advice.” This confusion is part of the challenge of delivering advice. “It’s the participant perception,” he said. ”If they only value advice and they’re getting what they think is advice, but they are getting education, that’s the problem with investment education versus investment advice.”  

Plan sponsors may feel there is a compelling reason that makes them want to give advice to their participants, noted John Shubert, vice president and senior retirement plan consultant, CBIZ Retirement Plans. “If we’re taking plan level advice to a plan sponsor, we sit in the committee meeting with them and we have specific conversations and drill down deeply,” he said. “One could argue that participants are excluded from that information. It’s complicated and it may not be in their wheelhouse but you could make an argument that they’re excluded. So advice is another mechanism to bring them information.”

After all, Shubert said, plan sponsors have a duty to inform participants about the things that can impact their situation. He emphasized that he does not advocate involving participants in the investment committee process, but said that specific investment advice is another mechanism for giving participants information. “It could be considered a good fiduciary best practice reason, to give them information they are not privy to,” he said.

A lot of education would be called advice by some people but not by the Department of Labor (DOL), Webb said, adding that some of the guidance has some blurred lines. “If you are not specific, mentioning choosing Fund X, Fund Y, Fund Z, it is not advice,” he said.

Webb pointed out, in response to a question about tools and resources that advisers employ that leverage technology in advice delivery, that advisers have complained about the lack of any great solutions but some do exist, or can be adapted. Tools that are designed to track other purposes, such as sales or products, can be adapted to track past conversations with participants, he said.