Employees Want and Need Advice for Their 401(k)s
I read as much as I possibly can and do my best to stay abreast of what’s going on in the industry. Recently, two press releases have caught my attention. The first was from Charles Schwab and focused on a survey of young adults and the second was from Rep. Robert Andrews of the First Congressional District of New Jersey, who is the head of the House Subcommittee on Health, Employment Labor and Pensions. What caught my attention was that both focused on the need and desire for advice. Specifically, advice for employees who are investing in an employer sponsored retirement plan such as a 401(k) or the federal government’s Thrift Savings Plan.
The Schwab survey revealed that almost two-thirds of young adults (23-28) think financial fitness is more important than physical fitness. Unfortunately, less than 20% consider themselves “financially fit” and more than 75% consider themselves “a little flabby” or “seriously out of shape.” And although they know it’s important to save for retirement, more than a third aren’t confident that they can make appropriate decisions. The truth is, if one-in-three say they aren’t confident, there are probably a lot more who are making poor decisions and either don’t know it or are afraid to admit it.
The other release focused on Representative Andrews efforts to strengthen defined contribution plans. He plans to do this by encouraging employers to hire advisors who focus on working with employees to appropriately manage their accounts. This would have a large impact on these plans due to the fact that less than one third of 401(k) plans offer advice to employees (Source: Charles Schwab).
I’d love to see more businesses offer a service like Smart401k’s for several reasons. The most obvious being that I work in a business that provides advice to employees. However, the bigger reason is that most people need help to appropriately save and invest for retirement. One of the main reasons that people need help is because decisions are often made based on the emotion they feel when they look at their account. This is why it’s much easier to invest when your account is gaining ground and sell when you are losing ground. Unfortunately, this has resulted in the historical precedent of – individuals investing the most at or near market peaks and giving up/selling at or near market bottoms.
So if you are ready to hire and advisor, you might be wondering what to look for… I think the most important aspect of any relationship is trust. An advice relationship is no different. You are forming a relationship and compensating the advisor with the expectation that they first and foremost are focused on doing what is right for you and your future, not for themselves. You will also need to consider the fees that you are paying for the advice. Generally, advisors who are willing to advise on employer sponsored retirement plans will charge a flat fee (Smart401k charges $59 per quarter or $199.95 per year) or a percent of assets (typical fees are 1-1.5% of assets depending on size of account).
I strongly believe that an advisor can greatly simplify the investment process and allow you to focus on the most important aspect of your retirement… your job. If you’d like to work with our advisors to build an investment plan appropriate for your situation, click here. And as always, please feel free to contact our team of advisors at info@smart401k.com or 877.627.8401 if you have any questions.
Scott H
PS – If you’d like to learn more before becoming a client request our Free “Six Ways to Take Charge of Your Retirement Investment” or read our Insight articles.
