Advice is Nice...Until It Isn't

Today I met with a client of mine for a committee review of the plan.  It went as these meetings normally go – a review of plan level activity, a discussion of the fund line-up, how were the recent employee meetings, etc.  All very pleasant with a good discussion.
At one point in the review, the owner/patriarch of the company asked “I see we have some employees invested in bonds.  Why?  They shouldn’t be.  Can you let me know who, so I can speak to them.  Fixed income is not where they should be putting their money.”  To be clear, he was saying this with the best of intentions.  He is universally loved by his employees and truly has only their best interests in mind.  However….

It is not uncommon for employees to stop by an HR office or CFO’s office, or even the founder’s office to ask “what should I do with my 401k money?”  It is also not unusual for caring individuals who occupy those seats to want to help employees with their money.  But is this the right thing to do?

The problem with giving such advice, of course, is that you open yourself up to downside risk.  It is almost never the case that people sue when things go well.  They sue when things go wrong.  So when an officer of the firm “helps”, “assists”, “advices”, etc. an employee on where to invest his or her money, downside risk is created when things do not go right
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In fact, I believe there already exists a fair amount of risk as our Baby Boomers move into retirement and realize that their nest eggs are not what they need them to be.  How easy would it be for an employee to look back on some “advice” their employer gave them years ago about investing and argue that but for that advice they would be in a better place with their retirement account?

Well, after we all had some fun in our meeting today challenging the owner’s actual knowledge of investing, we agreed on a better approach.  As an advisor who serves in a fiduciary capacity, I am actually licensed to give “investment advice for a fee.”  Since we were able to quickly conclude I was the only one so licensed, we agreed that in the future employees would be directed to me to discuss their investments and how to invest. 

Are you an employer who struggles with helping employees invest?  Is your advisor licensed to provide “investment advice for a fee?”  Not sure?  Give me a call and we can have a discussion about how to do the right thing without exposing the company to risk.
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Pete Welsh a/k/a 401kGuy