“Oh, my stock broker already took care of that.” said the plan participant, calmly almost with a tone of pride. The story is always a little different but almost always the same. Quite some time ago, the stock broker’s client expressed frustration over the investment options in her 401k plan. The stock broker offered or her client asked for some help picking the best funds off the main menu ~ and that was it. The subject never came up again ~ ever! The client considered the problem settled and the broker forgot about it the very next day.
Investment advice is a process not an event. Yet, the plan participant who has graciously accepted some “free” advice on her 401k investments has fallen into a common trap. While her broker may have suggested some funds, the suggestion was merely guidance. Investment advice is an ongoing relationship. Investment markets are dynamic and someone must be alert at the wheel. Would any of you consider setting your cruse control at 65 mph for a long distance highway trip ~ and then sleeping behind the wheel? Conditions change and adjustment are sometimes necessary. We don’t know when; but, experience suggests that at some point we will need to slow down or stop to avoid a collision.
Were you aware that the brokerage firm where your stock broker works has made it clear that their representatives are NOT to give advice on their clients 401k plan assets? Your broker’s firm knows that to do so would put the firm at risk of being a Fiduciary. Fiduciary Liability means that a plan participant may be able to sue the firm if the “advice” was inappropriate for a particular client’s ever-changing situation which resulted in an unnecessary financial loss.
As innocent as the request or offer of a “favor” to just look at the investment options on the 401k plan may have been, the truth is that plan participant is not being well served. What is the cost of the “free” advice if it is never monitored or even mentioned ever again? For the plan participant engaged in volunteer work, consider the attention you give to charitable services you have provided ~ after the fact. I would not be surprised to hear you say: “well… why should I?” Yet, how is it you believe your broker will give your 401k plan a second thought?