Most 401(k) Investors Shun Advice That Could Boost Their EarningsA significant number of 401(k) investors are refusing the free professional help offered by their investment plans, and as a result are missing out on the positive impact that good advice could have on their financial returns. A new study released by Charles Schwab (SCHW) on Wednesday found that accepting 401(k) advice had a positive impact for most plan participants, but it also revealed that although most employees say they want and would use advice if it were offered, very few actually do.

"We've got 74% of employers who are offering advice, but the percentage of employees that actually take advantage of it is very small -- it's less than 10%," says Catherine Golladay, vice president of 401(k) education and advice for Schwab.

Golladay says that as a result, fewer people are allowing their 401(k)s to maximize their earning potential. "The investor outcomes are going to be suboptimal," she says. "They are not going to save as much, they are not going to be as diversified across the asset classes and they are less likely to stay the course."

According to the Schwab survey:
  • 70% of participants receiving 401(k) advice make changes to their deferral rate that double their savings rate on average from 5% to 10%
  • Participants who do not receive advice have portfolios that average less than four asset classes, while those who receive advice have a minimum of eight.
  • Those who received advice were more disciplined, staying fully-invested during the market slide from July 2008 through February 2009 which allowed them to reap the full benefit of the market rebound through the remainder of 2009.
The survey also revealed that poor investor attitudes kept them from taking advantage of advice. When asked why they didn't use the 401(k) advice even when it came as part of their plan, a remarkable 49% of survey respondents said that they wanted to have more than $100,000 saved before taking the time to get advice. Other reasons for not using the advice included: getting financial advice from sources outside the workplace; having more pressing concerns about day-to-day financial matters; and not believing they'd saved enough to get advice.

To encourage more employees to accept the 401(k) advice, Schwab recommends companies offer advice in a one-on-one setting, which employees say they prefer; show employees that the advice works by letting them see and discuss investment outcomes; and get people motivated with grassroots efforts.

Golladay just encourages plan participants to seek out the advice for their own benefit. "It's a tool that can produce such powerful outcomes," she said.

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The lack of financial education in these posts is astounding.

September 26 2010 at 1:15 PM Report abuse rate up rate down Reply

judging from how WS kingpins made money, admitted( at congressional hearing ) to not understanding full impact of derivatives, it is becoming clearer that, 1.Big bosses of WS are still in the game. Do we have shortage of smart minds and leadership in financial world?? 2.No body is punished 3.investors,pension funds, 401(k) is almost collapsed 4.We are no way near confident of current system of WS 5.Fed needs to come up with an information platform where publicly traded securities financial data be standardized, so there is no chance of variation when comparing performance of one with the other-- And if wrong data is given on FED platform, stiff penalties be given-- just like those commiting capital crimes-- At least a continual debate is needed between public, WS and FED-- We need FED to be incharge of collecting and making available all financial data of all securities---ie. when revenue is reported, it is reported with all possible manuvers taken into account-- To me that is the transparency-- Govt. agency, CORP of Engineers are in charge of managing waterways of America,all commerce is carried out by non govt. entities--swimming in federal waterways so to speak--and it has worked!!! financial system need to follow the same model--

September 17 2010 at 12:45 AM Report abuse rate up rate down Reply

The best advice: take your own advice. It's really not that difficult for the average person to obtain the necessary knowledge and background to manage his own money.I did. And don't be intinmidated by the jargon. Remember, the old saying: your broker is not in it to send your kids to college; he's in it to send this kids to college. All along the advice was to buy and hold when in reality those who made money, and alot of it, made money by buying at the beginning of the bubbles and getting out before the collapse.Fortunes were made, and it was so easy to buy new construction, especially at resort areas, with a three percent loan, then reselling before the readjusted rate kicked in, and walking away with profits of 1,000 percent. So too with the early dot coms that had modest IPO prices then soared, even though they had shown no profits. Thosse who held lost their shirts, those who doubled their money then ran were handsomely rewarded. Buy and hold was great if you got in on the ground floor of the computer revolution, but even then you made more money by the traditional means of buying low, selling high, and repurchasing at a lower price.Having made all that money the best thing now is to own T Bills, CD's,money markets, and sound short term bonds, and just sit back and laugh at those who were assured their 401ks would always be safe if they would just buy and hold. Those that held lost up to fifty percent, if not more of their wealth. But getting in early on the dot coms, getting out, then with the profits getting into the housing bubble then getting out before the real estate collapsse was so easy. Never give another person your money to manage. Only a fool does this. The problem is the government's taxing policies permit your taxes to be lowered if you "hide" some money in your 401k. What they should do is tax only eighty percent of wages and permit everyone to manage their own money.But big business and big finance. are joined at the hip

September 16 2010 at 5:34 AM Report abuse rate up rate down Reply

"COULD boost earnings" is the same as "COULD cause you to lose anything you might have left." Free advice is worth exactly what you pay for it. The only ones to profit from it are the ones giving it.

September 15 2010 at 11:16 PM Report abuse +2 rate up rate down Reply

Yeah, the financial industry is known for dolling out great advice! My God. How could I pass up the strategies of a bunch of professionals who can't beat the index or a monkey with a dart.

September 15 2010 at 10:04 PM Report abuse +4 rate up rate down Reply

Good for you Randy! I got out just before the peak when the Dow was about 12k. I went to all cash and was actually getting some decent returns 3-5% for a while. Now I'm about 10% bonds, 15% utility stocks (5% div.) and 75% cash. I lost nothing in the crash and I have averaged about 3.75% return since the crash. I manage my own investments now. Good Luck.

September 15 2010 at 8:23 PM Report abuse +3 rate up rate down Reply

We are all experts after the fact.

September 15 2010 at 8:19 PM Report abuse +3 rate up rate down Reply

I took TIAA-CREF, a very conservative outfit, up on its offer of an evaluation of my portfolio. I was 75 percent in cash, 25 percent stock and two years out from retirement. That firm recommended I sell all my stock and buy their mutual funds. Also, it recommended that I have no – zero – cash and use it to buy their mutual funds. I couldn’t believe it. I ignored their advice and a year has passed. Had I taken their advice I would have been down $75,000 to $100,000. I’ve had colleagues with Certified Financial Planners who have been buying stock on their behalf for years now. I’ve beat them all with my 3 puny percent interest. Meanwhile, I’ll hang on to my 25 percent in stock and not sell. I’ll also keep my 75 percent in cash. I sleep very well, by the way.

September 15 2010 at 8:14 PM Report abuse +3 rate up rate down Reply

Ha ha, what a joke. I will never trust these guys again. Even when the shy was truly falling two years ago not one of them ever edvised anyone to get out of the stock market. They were either dishonest or incompetent, I have no use for either one. I got my money out in time and didn't lose a dime, but not because I listened to those guys, they said I was nuts.

September 15 2010 at 8:13 PM Report abuse +7 rate up rate down Reply

These comments are priceless. Loose everything in bonds, because why?..the Fed is going to jack up rates that quickly? If you need income, why not own floating rates, they have minimal duration risk.

September 15 2010 at 8:01 PM Report abuse +2 rate up rate down Reply