401(k), 403(b) participants concerned about quality of investment advice: AARP survey

More than three in four respondents to an AARP survey indicate that they are either “very concerned” or “somewhat concerned” by the fact that investment advice from 401(k) and 403(b) providers is not required to be in the best interest of individual plan participants. The survey of 1,425 adults age 25 and over who currently participate in a 401(k) or 403(b) plan was conducted in May 2013.

The survey examined a range of issues related to investment advice available to plan participants from the financial institutions that manage the plan with a particular focus on reactions to the fact that such advice is not typically held to a “fiduciary” standard. The intent of the survey, said the AARP, “is to understand the degree to which plan participants are concerned about the fact that advice offered by their plan provider may not be required to be in their best interest.” Respondents were also asked whether they would support or oppose requirements to hold such advice to a higher standard.

According to the survey, 77% of respondents indicated that they were very or somewhat concerned by the fact that investment advice from 401(k) and 403(b) providers is not required to be in the best interest of individual plan participants. A smaller majority (62%) described themselves as very or somewhat concerned by the fact their plan provider can give advice to plan participants and may make money from the investments that plan participants choose.

Independent investment advice

When asked to indicate whether they would prefer to receive advice about their 401(k) or 403(b) plan from someone that may make money from their investments or to receive no investment advice at all, reactions were mixed. Nearly four in ten (39%) said they would choose “advice from someone that may make money from the investments I choose,” nearly as many (31%) indicated they would choose “no investment advice at all,” while another 29% indicated they didn’t know which option they would choose.

The overwhelming majority of respondents (81%) either strongly or somewhat agreed that it is important to get investment advice about their retirement from an independent advisor who does not earn money based on their investments. Fewer than four in ten (36%) said that they would trust the advice from an advisor who is not required by law to provide advice that is in their best interest.

Overall, the AARP concluded that the findings from the survey demonstrate that “majorities of 401(k) and 403(b) participants are concerned about the fact that investment advice offered by plan providers is not held to a fiduciary standard and the fact that plan providers have a conflict of interest when giving advice due to their financial interest in plan participants’ investments.”

Source: AARP, “Fiduciary Duty and Investment Advice: Attitudes of 401(k) and 403(b) Participants,” September 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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