LAKE WORTH, Fla. -- Close to 12% of large companies with defined contribution plans offer plan participants investment advice, according to a new survey by Insight In Formation.
An additional 8.2% of companies with more than 3,500 employees and an average of $275 million in plan assets are planning to offer participants investment advice within the next 12 months, according to the survey.
More than half -- 55% -- of company executives said they are providing investment advice because participants need it. The second most frequently stated reason, cited by 11.8%, was that employees have asked for it, according to the telephone poll of 874 companies. Another 10.8% of company executives indicated they provided investment advice in order to achieve plan goals such as increasing the participation rate.
While investment advice still is not a hot item, the results of the survey indicate companies might be pushed into offering it by their younger employees, said Fred D. Barstein, managing director of Insight In Formation, Lake Worth, Fla.
"Younger people take more responsibility for their investing and younger people are more comfortable with investing and the Internet," Mr. Barstein said.
According to the survey, 11.4% of large companies offer Internet access to more than 75% of their employees, and 10.8% are planning to offer Internet access within the next 12 months.
By far the greatest barrier to jumping into the investment advice pool -- mentioned by 61.5% of companies that are not contemplating giving investment advice -- is liability. The second most frequently mentioned reason, given by 9.9% of the 455 company executives who answered the question, said they did not plan to offer advice because it was the employees' responsibility to obtain investment advice privately. Another 8.1% said cost was a hindrance and 5.3% indicated they have other education methods.
"Employers -- especially in the large companies -- are still hung up on 'what is my liability,' " Mr. Barstein said.
He noted, however, the liability burden of companies could be eased a bit by offering the service.
"If a participant loses money, companies that offer investment advice can ask 'What more could I have done?' " Mr. Barstein said. "If they are worried about liability, investment advice should be the first thing they should do."
Still there are lingering fiduciary responsibility issues, pension lawyers said.
"It's a very tricky line," said Ron Richman, partner in New York-based Schulte, Roth & Zable. "Even where an independent adviser is the fiduciary to the participants, the plan sponsor will be the fiduciary for purposes of selecting the adviser."
The Insight In Formation study agrees with some of the results of the BARRA RogersCasey/IOMA 1999 Defined Contribution Survey released in July. That survey of close to 498 companies -- the majority of which had plans with assets of $25 million or less -- revealed plan executives are reluctant to provide investment advice. The primary reason is fiduciary concerns about crossing the line between education and advice. However, the BARRA RogersCasey study had a far rosier picture of the investment advice landscape in the 401(k) market. According to that study, 22% of small firms provide participant-specific investment advice and 29% of plan sponsors are considering offering advice in the future. Most of the plans surveyed said they are using their current bundled provider for the advice.
An unintended result the Insight In Formation poll revealed is that even in the large plan market, not all executives understand what is meant by investment advice, Mr. Barstein said.
The Insight In Formation poll was conducted in 1998 and again in March, April and May of 1999, he said.
In 1998, a whopping 18.2% of executives at large plans surveyed said they offered investment advice. But, it turned out some company executives were confused about what constitutes investment advice, Mr. Barstein said. In 1999, executives at Insight In Formation refined the definition of investment advice and 8.2% of large companies said they offered the service, Mr. Barstein said.
"We did not think they understood the difference between investment advice and education," he said.
