How Retirement Advisors Really Add Value To 401(k) Plans

Most people believe that the value of the retirement advisor is the ability to enhance returns. But if that were true, there would be no asset allocation because that strategy deliberately reduces returns. The fact is that a well allocated portfolio offers asset preservation at the expense of enhanced returns. There is no conclusive evidence that retirement advisors increase investment returns.

The value of the retirement advisor is far greater than marginal investment returns.

Understanding the real value requires stepping away from the investment itself and focusing on the outcome if the retirement advisor was not in the picture. The answer lies in how different the 401(k) industry would look if there were no retirement advisors:

  • There would be far fewer plans. Of the over 600,000 plans, 90% to 95% would not exist without the efforts of advisors.
  • Participation rates would be lower. Instead of 87% participation, the no-advisor world would have fewer that 25% of eligible employees participating.
  • Diversified investments would be the exception. Stable value and fixed income investments would dominate.

These estimates are not mere speculations but were the facts in the 401(k) marketplace before retirement advisors were active.

With an estimated 5 million businesses still without a retirement plan, it becomes obvious that advisors will continue to play a critical role in achieving a more secure retirement for more workers.

The Retirement Advisor’s Challenge

Providing the value of a secure retirement may appear on the surface to be a simple task. Experienced professionals recognize that this is not the case. Enhancing retirement security requires uncompensated and labor-intensive work that is required before a plan is in effect for an employer and then for each employee.

A successful retirement advisor must overcome the resistance of the employer to increasing employment expenses by offering a retirement plan. The highly visible direct and indirect expense to the employer has to be justified by an altruistic and often illusive long term benefit that employees may or may not value.

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