Many Minnesota employers now provide investment advice to their individual company 401(k) retirement plan participants.
This investment advice can be delivered online. It can be delivered over the phone. Or it can be delivered through face-to-face meetings with professional investment advisers.
Any form of investment advice made available to individual company 401(k) retirement plan participants is better than nothing. But all forms of investment advice offerings should only be considered after answering the following three questions.
First, ask if the investment advisor company or individual investment adviser is acting as a fiduciary under ERISA law.
Investment advice fiduciaries act in the best interest of individual company 401(k) retirement plan participants. The investment advice they provide is free from any conflict of interest. The investment advice is objective. The investment advice is based upon the financial circumstances of each individual company 401(k) retirement plan participant.
The second question to ask is about the compensation paid to the investment advisory firm or to the individual investment advisor.
Make sure that the investment advisory firm or individual investment advisor does not stand to benefit financially from recommending one investment product versus another product on the same company 401(k) retirement plan menu.
Individual company 401(k) retirement plan participants should not be steered into specific mutual fund options on a company 401(k) retirement plan menu. Investment advice provided by company 401(k) retirement plan providers is especially guilty of this sin.
As an example, let’s say that your company 401(k) retirement plan provider is Fidelity. A Fidelity investment advisor representative is much more likely to recommend that you own Fidelity mutual funds; even when there are other better performing non-Fidelity mutual funds on the company 401(k) menu.
This example does not take place all the time. But it does take place more often than it should.
The third question to ask is about the details of a stock and bond market risk management game plan going forward.
Pie charts, diversification, and asset allocation all look great when the stock and bond markets are going up. Remember July 2008 to March 2009? With the technology and sophistication available today, there is no reason to repeat those past investment management mistakes.
The last five-plus years of stock and bond market investment gains can vaporize in a matter of weeks. Your company 401(k) investment advisor has to be able to articulate a risk management game plan when the economic and stock market cycles turn downward.
Ric Lager
Lager & Company, Inc.
