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. Tumultuous markets are part of the investor experience, and retreating from the markets has not historically been proven to be an effective investment strategy. For that reason (and more), it is the job of the advisor to manage clients’ stress and help prevent any counterproductive, emotional decisions. 

As I speak with plan sponsors and discuss education programs, I hear a common refrain: “My advisor provides education.” It is important to define not just the programs available to participants, but the overall scope of service. Education can mean many things to many people. For some advisors, the scope of education can be a periodic group meeting, while for others it includes “advice.” This distinction was greatly tested over the course of 2020.

Disastrous mistakes can be avoided via the presence of a dedicated, live advisor who understands and embraces the fiduciary standard. 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 market timing and panic selling were recipes for failure. Participants intuitively understand this, but emotions have a way of eroding discipline. 

Picture a common scenario where a plan participant with little investment experience is seeking advice from a plan advisor. 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 hearing a surgeon say, “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 (removing the harpoon, hopefully).  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 it took me some time to truly appreciate the gravity of that statement. 

At the start of the pandemic, working from home, the financial news would often play in the background. After a week of this, I couldn’t take it anymore. The doom and gloom, “market is going to zero” and “economy will never recover” messaging became too much and I shut the TV off.  This is when it hit me - this is the damaging messaging that our plan participants are reading and watching, and is why they were panicking so much, despite my best efforts to quell those concerns and stay the course. Purveyors of news and tabloid are taught “never to let a good crisis go to waste” and act upon that saying with fervor to drive eyeballs, views and advertising. Unfortunately, this is almost always counterproductive for the investor, because it causes stress and increases the likelihood of bad decision making. 

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 repeat the creed that maintaining the course is the only prudent way to invest. The markets will continue to be volatile. We will continue to see pullbacks, 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!

Contact Alesco Advisors to reach Andrew directly, or learn more about our investment approach and service offerings.

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