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advocacy community education
portfolio of the alternative); identifica-
tion of any designated investment
managers; an explanation of how to
give investment instructions; and a
description of any transaction fees or
expenses charged to the participant's
account (e.g., commissions, sales
load, deferred sales charges, and
redemption or exchange fees).
may not actually provide sufficient
information to participants so that
they can make informed decisions.
In addition, studies have shown that
investment education does provide
participants a better rate of return for
those who received education than
participants who didn't. Concepts of
"market timing" and "dollar cost aver-
aging" have proven to reduce the
impacts of adverse market conditions
over extended periods of time.
What type of investment education
should advisors offer to plan partici-
pants? Obviously, it has to be educa-
tion and not actual investment advice.
The DOL, in Interpretive Bulletin 961,
delineated four categories of invest-
ment information that do not constitute
investment advice under ERISA. The
four categories include plan informa-
tion such as details about plan partici-
pation and the investments offered
under the plan; general financial and
investment concepts such as risk,
diversification, and asset classes;
asset allocation; and interactive invest-
ment materials such as estimating
future retirement income needs.
Handing out a bunch of Morningstar
profiles and wishing everyone good
luck isn't sufficient education. Financial
advisors will have to be more proactive
than that.
We have met many financial advisors
who either aren't interested in offering
education or are afraid to. While offer-
ing education to plan participants can
help a plan sponsor minimize liability, it
is also an effective tool for financial
advisors to market and retain clients.
Advisors also shy away from offering
participant education because they
don't understand what it's really there
for. Like public education, offering par-
ticipant education is not offered to
achieve a certain result. Advisors
should always look at education as lia-
bility protection, because it helps a plan
sponsor minimize liability under ERISA
While we always stress education as
an important part of the fiduciary
process, it's not about achieving a spe-
cific result from participants directing
their own investments. Offering partici-
pants education is like the old proverb,
"You can lead a horse to water, but you
can't make him drink." No matter how
great the education component is,
there is no guarantee that it will help
plan participants achieve a better
financial result.
The Case for Investment Education
(continued from previous page)
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