Advice

retirement planningThe importance (and scarcity) of advice for participants
The inability of participants to obtain advice that is relevant to their situation reduces participation, reduces contribution rates for those that do participate, and often results in participants making sub-optimal asset allocation decisions. 

One-third of all 401(k) plans have 0% allocated to equities.

Source:  “Appendix:  Additional Figures for the EBRI/ICI Participant Directed Retirement Plan Data Collection Project for Year-  End 2005”, Sarah Holden and Jack VanDerhei

Average contribution rate  is only 6.9% of salary*, less than 10% of participants contribute the maximum allowable**

"401(k)s: Participation and Contribution Rates Are Down." Financial Advisor April 2006, p28.
**Center for Retirement at Boston College

30% of eligible employees do not participate in their companies’  401(k) plan

Source:  "401(k)s: Participation and Contribution Rates Are Down." Financial Advisor April 2006, p28.

Plan sponsors have been reluctant to provide anything but the most general of guidance for fear of being sued should participants suffer losses.  The advice of consultants hired by the plan is generally limited to deciding what funds should be included.  The consultants are often hired by the mutual fund company, and the funds consultants generally recommend are (surprise), funds offered by fund companies that pay consultants.  Because plans lack a mechanism to include financial advisers selected by the participant (i.e. compensate them) participants do not have their own financial advocate.  

The Pension Reform Act of 2006 - an opportunity
The Pension Reform Act of 2006 encourages employers to take a leadership role for individual retirement planning, either directly or by making advice available from third parties.   If fees and fee structures are transparent, and advice is driven by participant need and not provider compensation, fiduciary risk is minimized.  String Financial™ has three advice options.  StringSimple™ provides a simple one-fund retirement planning strategy, while StringAdviser™ and BrokerConnect™ provide and facilitate individually customized financial advice.  

 


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