Retirement Plan Advisors: Should I Use An Investment Advisor For 401k

Retirement Plan Advisors: Should I Use An Investment Advisor For My 401k Plan?

retirement plan advisors

Should 401k participants use retirement plan advisors – or go at it solo?

A study on 401k participants  and retirement plan advisors working together should be revisited in today’s market by both investment advisors and retirement plan participants.

The study was conducted by Aon Hewitt and Financial Engines, titled:  Help in Defined Contribution Plans: 2006 Through 2010.

Survey Results: Majority Are NOT Using Retirement Plan Advisors

The study surveyed eight, large 401k plans comprising more than 425,000 participants, and $25 billion in assets during a five year period –  a period which also includes the 2008 stock market decline.

Some interesting stats, including one that amazed me – That only 30% are seeking help in their 401k plans, which is most likely the largest part of their wealth.

The study went on to show that participants that used retirement plan advisors for help were significantly better off than those who go it alone.

Less Mistakes For Those Using Advisors

Across all age groups and a range of market conditions, participants using retirement plan advisors (“Help Participants”) experienced higher returns with lower risk than those not using an investment advisor. (“Non-Help Participants”).

The returns gap between Help and Non-Help Participants was greatest during 2009 when the market was recovering from the financial crisis of 2008.

Specifically, investing mistakes and market timing behaviors observed in the Non-Help population had a particularly negative impact on Non-Help Participant investment performance in 2009.

Baby Boomers Can Do Better

Nearly one-third (30%) of 401k participants used an advisor by the end of 2010, up from a quarter (25%) of participants from the first edition of this report.

More than any other age group, Baby Boomers used retirement plan advisors help the most (44% of Boomers used an advisor).

Non-Help Participants, particularly those near retirement (age 50 and older), had inappropriate glide paths and risk levels.

glide path investment advisor

Notice The Large Range Between Best And Worst Case Scenarios

Near-retirees had the widest variability in risk levels with some in this age group having risk levels above that of the S&P 500 index than those using retirement plan advisors.

Note: While a  retirement portfolio may seem to be diversified among various asset classes and sectors, the portfolio can still have a high positive correlation. This is what surprised so many investors in the decline of 2008.



The failure to reduce risk as they age could potentially threaten participants’ ability to retire should the market suddenly decline, as it did in 2008, or go through a particularly volatile period, such as the third quarter of 2011.

Here is a copy of the report:

Help in Defined Contribution Plans: 2006 Through 2010. 2011 401(k) Help Report

Higher Overall Returns

Participants using retirement plan advisors, on average, experienced returns nearly 3% (292 basis points) higher than Non-Help Participants, net of fees. The performance difference ranged from 2.53% to 3.40% across the age group.

The investment performance difference of help from retirement plan advisors can have a meaningful impact on wealth accumulation over time. For example, using the return difference from above, 2.92% (292 basis points), suppose that two participants—one using an advisor and one not using:

Both invest $10,000 at age 45. Assuming that both participants receive the median returns identified above in this analysis, the participant using an investment advisor could have 70% more wealth at age 65 ($71,400) than the Non-Help Participant ($42,100).

Using the more modest return difference of 2.19% (219 basis points), and the same assumptions, the Participant using an advisor could have 55% more wealth at age 65 ($48,900) than the Non-Help Participant ($31,500).

There are two primary reasons behind the poor portfolio performance of Non-Help Participants: inappropriate risk levels and inefficient portfolios”

Lastly, it should be noted that Near-retirees not using retirement plan advisors showed the highest incidence of “panic” during the 2008 downturn with trading activity that led to significantly worse investment performance results in 2009.


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