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CAP member advice: The elephant in the room

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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 http://www.indexuniverse.com/sections/news/6012-bogle-investors-are-getting-killed-in-etfs.html and http://www.plansponsor.com/Study_Suggests_Help_Matters_Even_More_in_Volatile_Markets.aspx. 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
Proteus

Thursday, October 06 at 11:00 am | Reply

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