In a capital accumulation plan (CAP), there will be two types of members: those who are engaged and understand enough basic investment concepts to do it themselves; and those who are unengaged and would rather not learn how to invest and make investment decisions.

Compounding problems for the unengaged member is a tendency for engaged members to, over time, push for plan changes (i.e., adding investment styles, multiple managers, asset classes and sector specific funds) that could harm the unengaged member’s chances for success.

Experience has shown it is not unusual to have a large portion (sometimes the majority) of members invested in the default fund. This is often because they either do not understand asset allocation and investment selection, or because they defer making a decision to some other time. Those that do make an investment decision often use inappropriate decision making criteria—past performance, “flavour of the month” type of funds or naive diversification.

Unengaged younger members tend to invest more conservatively than they probably should, often because they do not have the confidence or knowledge to make investment decisions. Meanwhile, many unengaged older members are invested too aggressively, often because they have not rebalanced their asset mix over time and have not revisited their risk tolerance level as retirement nears. Recent market losses in 2011 and 2008 have highlighted the dangers this can pose to a member’s retirement account balance and retirement timeline. A loss of 30% can take seven years to recover at a modest return of 6% a year.

Even for those engaged members, CAP communication is often focused on enrolling in the plan and what to do while in a plan. Relatively little guidance and education is focused on those who are transferring out of a CAP or approaching retirement.

Improved communication and better education can help support the engaged members, but rarely will have any benefit for those who are unengaged, since they are unable or unwilling to spend the time learning how to invest.

Many plan sponsors, record keepers and consultants who work with members on an ongoing basis have recognized that a large portion of members could benefit from advice regarding asset allocation, investment choice, investment monitoring and saving at an adequate level to fund retirement, but few are willing to provide this service as part of the plan. This situation is the proverbial ‘elephant in the room’ for CAPs.

In the 2007 Benefits Canada Survey of CAP Members, when asked if they “expect (their) employer to provide access to a financial advisor so that (they) can make the best investment choices in (their) employee retirement plan,” 74% of respondents either strongly agreed or somewhat agreed with the statement (compared to 65% in 2006). The 2008 Benefits Canada Survey of CAP Members found that 71% of respondents would be somewhat likely or very likely to use an advice service if it was provided free of charge. This statistic falls to only 19% if the member has to pay.

Anecdotal feedback I have received from clients has indicated that many members are not comfortable making asset allocation and fund selection decisions and often ask for assistance—usually from the sponsor’s human resource professionals, who generally know better than to give advice to members.

Although there is a recognized need and end-user market demand, to date little has been done in Canada to address the member advice elephant. Only a few products have been launched to serve this market and take-up has been minimal for several reasons: the legal questions regarding the sponsor’s liability for providing advice; products that do not truly address member needs; solutions that do not scale for large plans; and the belief (rightly or wrongly) of some sponsors that they are not responsible for providing these types of services to members.

In other jurisdictions, such as the U.S., the trend has been moving to a more favourable environment for the provision of advice. In the U.S., regulations regarding 401(k) plans (equivalent to DC plans in Canada) have provided a “safe harbour” provision for plan sponsors who provide advice in a prescribed manner (Pension Protection Act of 2006). Since that time, the provision of advice to members has grown substantially, as Benefits Canada reported recently. Based on research by Charles Schwab, 81% of U.S. employers are now offering 401(k) advice for plan participants, compared to 42% in 2005. This result stands in stark contrast to Canada, where the majority of plan sponsors do not offer advice to members and where no “safe harbour” exists to protect the plan sponsor.

While there are potential legal risks with providing advice in Canada, this same risk should be contrasted with the risk associated with not providing advice. In the latter case, a disadvantaged member may claim adequate support was not provided—to the detriment of their retirement aspirations (i.e., they will not have enough money to retire and/or will exhaust their assets if they do retire). This issue would pose real problems to plan sponsors, regulators, the courts and, ultimately, society.

A well thought out advice offering can enhance member’s understanding of investment concepts, increase their appreciation of the plan, help ensure they maximize the benefit and help satisfy the plan sponsor’s commitment to assisting members save and plan for retirement. In short, it can offer a better outcome for everyone—and one less elephant to worry about.

Ryan Kuruliak is a Toronto-based vice-president with Proteus, an investment and governance specialty firm. He has more than 14 years experience in the pension and investment consulting industry.

These are the views of the author and not necessarily those of Benefits Canada.

Copyright © 2020 Transcontinental Media G.P. Originally published on

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Christopher Cartwright:

When fiduciaries weigh the risks and benefits, are we take for granted that advice always delivers better results or is there some evidence to consider?

Tuesday, October 04 at 2:36 pm | Reply

Ryan Kuruliak:

You certainly cannot take for granted that advice always delivers better results – nothing is guaranteed. You should, however, have a process in place to ensure that the advice being given to members is appropriate and consistent. The evidence that does exist in the behavioural finance field relating to investors who are left to their own device is not favourable and it is evident that many mistakes could be avoided with the proper assistance, guidance and advice (as the case may be). Two quick examples that consider the issue can be found at and I would also add that in many cases we know more about what doesn’t work than what does – more research will be needed.

If you are going to partner with an outside firm (or firms) to provide advice to your members, you should consult the CAP Guidelines – as they provide direction regarding hiring and monitoring advice providers, but even these will not provide Safe Harbour. Like all aspects of retirement savings governance – defining objectives, documenting the process and monitoring the results – will be the key to successful outcomes for stakeholders.

As well, it will be important for sponsors to decide the scope of advice offered – will it deal only with the sponsor’s retirement plan, only with asset allocation, only with choosing investments, how much to save, or will it also consider a more complete financial picture – including assets outside the plan.

These are not easy questions to answer, but having a conversation within your organization will be the first step to deciding if this a road you should go down – and if so how best to proceed.

Ryan Kuruliak, CFA
Vice President

Thursday, October 06 at 11:00 am | Reply

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