Is Investment Education Enough?

Only About Half of All Companies Provide Investment Advice

According to annual studies by The Profit Sharing/401k Council of America, just over half of all companies provide investment advice to 401k plan participants. Actual numbers may be lower considering that more plan sponsors perceive they are providing investment advice while retirement professionals think that only education is being offered.

What's the Difference?

Investment Education

Information in any or all of the following categories is classified by the Department of Labor as education, not advice.

1. General financial and investment information which explains investment terms and concepts
2. Plan Information including investment alternatives and historical return information
3. Asset allocation models including hypothetical portfolios of individuals with different goals, time horizons and risk profiles
4. Interactive investment materials such as questionnaires and worksheets, whether on paper or computer, to estimate future retirement income needs and evaluate the impact of different asset allocations on retirement income

Investment Advice

Again, according to the Department of Labor investment advice includes two aspects.

1. Advice regarding the value of securities or other property, or recommendations on the advisability of investing in, purchasing or selling securities or other property, and
2. The person providing the investment advice
- has discretionary authority or control with respect to purchasing or selling securities or other property for the participant or beneficiary or
- renders advice on a regular basis to the participant or beneficiary, pursuant to a mutual agreement, arrangement or understanding that the advice will serve as a primary basis for the participant's or beneficiary's investment decisions and that such person will render individualized advice based on the particular needs of the participant or beneficiary.

What Do Employees Need?

Many employees are not knowledgeable about the complexities of investment management, risk/return strategies, asset allocation and diversification principles - knowledge important to making the best investment decisions.

Are Employers Liable for Bad Advice?

Employers may be reluctant to provide investment advice out of concern that such activities give rise to fiduciary liability. "The risk involved when giving advice to plan participants is probably no greater than for any other fiduciary action or decision that a company makes concerning the plan" says David Wray, President of the Profit Sharing/401k Council of America. "Knowing this, the employer can provide advice to participants while acting responsibly to keep fiduciary risk to the company manageable. Remember that ERISA requires prudent decision-making, not [a] successful outcome" noted Wray.

The U.S. Labor Department's Leslie Kramerich spoke before the American Society of Pension Actuaries Conference and answered specific concerns about employers providing investment advice. Among other relevant points, she explained that prudent selection of an investment advisor limits the employer's liability and employers are not liable for acts of the investment advisors. Read more here.

In summary, there is no downside to hiring an investment advisor that specializes in both plan administration and investment advice. In fact, you will be providing your employees a significant benefit while quite possibly reducing your fiduciary liability.

If you need assistance understanding how to best provide investment education and advice to your employees, we can help. McCulley Financial Group is an experienced retirement plan specialist. Give us a call at 630.406.9900 to set up a meeting to learn how our specialized, retirement planning services can help you.

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