Is there really a financial payoff to working with a financial advisor instead of going it alone? Well, it will depend somewhat on the advisor and on the individual going it alone, but Charles Schwab did some analysis of the many participants in 401(k) plans which they provided custody. The upshot was, “401(k) participants who receive some kind of assistance with choosing their investment line-up, whether through advice services, target-date retirement funds, or plan sponsored asset allocation models, receive a significantly greater rate of return than those who choose to go it alone.”

Unfortunately, too many 401(k) retirement plans don’t really provide access to good advice for participants. New legislation has increased the opportunity for advisors and, more importantly, is bringing more appropriate advice to the forefront for plan participants. What a participant should do is request investment advice from their employer. Of course, I am referring to a professional retained by the employer to provide independent advice to participants. The value added that the advisor should bring is the development of a portfolio allocation that reflects sound investment knowledge and understanding of a participant’s needs.

The study showed that individuals who received financial advice or plan-sponsored asset allocation models earned a substantially greater rate of return than those who were on their own. The release,  “New Schwab Data indicates Use of Advice and Professionally-Managed Portfolios Results in Higher Rate of Return for 401(k) Participants” quantifies the value that professional financial advice added to the returns of investors for the previous year, 2006. Broken down by age group, the data is set forth in the table below.

“It’s not surprising that people using advice are more likely to earn higher returns, but it is remarkable to see how much better they are dong,” said Jim  McCool, executive vice president of Schwab Corporate & Retirement Services.

This study shows the significant added value that 401(k) plan participants receive when they are educated regarding the significant impact of risk, return, time and diversification.

A knowledgeable and independent financial advisor will educate and inform plan participants. Doing so will significantly increase their investment knowledge, enabling them to invest in the portfolio that matches their ability to take on the right amount of stock market risk and optimise their returns.

*Past Performance is no guarantee of future results. Source: Schwab press release dated Nov. 28, 2007, titled, “New Schwab Data indicates Use of Advice and Professionally-Managed Portfolios Results in HIgher Rate of Return for 401(k) Participants.”

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“Investor Education for Main Street America”

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"Investor Education for Main Street America"