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Education Shouldn't Be Confused With Advice

Posted by Andrew Kay on Jun 9, 2021 1:52:56 PM

An advisor truly proves their worth when times are difficult. When markets are facing challenges is when advisors need to step up and remind clients that it is all part of the investor experience and retreating from the markets has not historically been proven to be effective.

As I speak with plan sponsors and discuss their education programs, I hear a common refrain: “My advisor provides education.” With such a generic term, it is important to define not just the education program available to participants, but to get a sense for what the overall service is.  Education can mean many things. For some advisors, the term means a group meeting every once in a while, while for others it includes “advice.” This distinction was greatly tested in 2020.

Having a real live person to speak with and that can make recommendations for participant accounts can save so many participants from making disastrous mistakes. Looking back to March of 2020, when countless hours were spent on the phone speaking with participants, I heard participants say the same thing over and over again: “I know what you are going to tell me, I just need to hear it from you.” These participants listened to numerous presentations or emails over the years that timing the market and joining in on panic induced selling is a trap you can’t afford to fall into. Participants understand this, but when they are watching the savings they worked so hard for drop 20% or more in less than a month, it can be difficult to maintain discipline.

Picture a common scenario where a plan participant with little investment experience is seeking advice from a plan advisor and when they ask what they should do with their investments given the market volatility the advisor merely says, “I can’t tell you what I think is best, but in our education sessions we have materials that discuss how to approach long term investing.” That’s like going to the emergency room with a harpoon in your neck and the surgeon says, “I can’t tell you what I think is best, but most people don’t like walking around with a harpoon in their neck.”  A surgeon is going to jump into action and do what they feel is best (hopefully removing the harpoon).  When you are on the line with a participant desperate for reassurance that they are doing the right things with their investments you need conviction, and you can only do that if you are providing one-on-one advice, not general education.

I have been giving retirement plan education presentations for close to a decade now. I often mention that participants need to shy away from allowing news and media outlets to inform their investment decisions. However, I will admit that I never truly appreciated just how important this message is. 

At the start of the pandemic, working from home I would put the financial news up in the background while working. After a week of this I couldn’t take it anymore. The doom and gloom, “market is going to zero” “economy will never recover” messaging became too much and I shut the TV off.  What I realized though is that this is what plan participants are reading and watching. This is part of why they were panicking so much despite my best efforts to quell those concerns and stay the course. The media loves a good story, and a good story, meaning lots of clicks and views, for the media is not necessarily good for the individual investor. The media’s objective is not to make you a lot of money, its for them to make money.  

As advisors, we are not immune to feeling the same stresses when the markets are down, but it is our fiduciary duty to always act in the best interests of plan participants, which often means to encourage a long-term outlook and that maintaining the course is the only prudent way to invest. The markets will continue to be volatile. We will continue to see pull backs, corrections, and bear markets. This means investors, especially retirement plan participants, are best served with an advisor who will help them through the challenging times.  I am thankful for the opportunity I had to guide clients through the downside of 2020, though am admittedly in no hurry to repeat it!

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