investing

Getting good, but cheap, financial advice

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Highlights
  • If your plan provider offers cheap or free advice, take advantage of it.
  • Workers who follow advice offered through a 401(k) plan fare better.
  • If you hire help, be sure to understand the fee structure for services.

Investing advice is as common as grass. It's on TV, it's on the Internet. It's in newspapers, magazines and plenty of books, for dummies and nondummies alike.

Even with the massive proliferation of information, financial expertise eludes most.

In fact, basic financial planning eludes many people. A little targeted advice could cut through the confusion.

"But wait," you may be saying, "I can't afford to pay for advice; I'm not a millionaire." You don't need to be. Reliable and affordable financial advice is available for everyone on the socioeconomic scale.

401(k) plan advice

One option might be as close as your home away from home: work. Many employers who sponsor a retirement plan offer free or discounted advice from the plan provider. Half of employers offer third-party investment advice, and another 9 percent plan to offer it, according to "Trends and experience in 401(k) plans," a 2009 study from Hewitt Associates.

Advice options for plan participants are somewhat limited due to laws governing employee retirement accounts and employers' liability concerns.

A recent law, the Pension Protection Act of 2006, "gave a little bit more breathing room for employers to offer these programs without liability concerns," says Leonard Sanicola, benefits practice leader at WorldatWork.org, a human resources professional association.

According to the Department of Labor, as a result of Pension Protection Act of 2006, the advice can be either:

  • From a computer program.
  • Directly from an adviser as long as the adviser is compensated the same amount no matter what the recommendation or how the plan participants invest.

The advice can be invaluable for plan participants. A recent survey has found that employees who do take advantage of the advice offered through their employer's plan, and then use it, do better than their unadvised peers.

The survey, by Charles Schwab, found that nearly three-quarters (74 percent) of Schwab's plan sponsor clients make advice available to plan participants. Fewer than 1 out of 10 people make use of that advice, however.

When plan participants do talk to advisers offered by their employers, it has a positive impact. The percentage of income deferred increases by an average of 5.42 percent to about 10 percent of their pay.

"It makes people save more. They have better diversification and better rates of return. And a big thing -- it helps people stay the course," says Dean Kohmann, vice president of 401(k) services at Charles Schwab.

Most plan participants (92 percent) stuck to their plan through the market turmoil in 2008 and 2009.

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If the service is offered with your retirement account, you should strongly consider taking advantage of it. It will probably be a lot better than doing nothing.

Talk to a paid professional

If you don't have access to cheap advice at work, you can always hire help. And you don't have to pay through the nose.

Financial advisers can be paid in a variety of ways. They may take a percentage of assets that they manage -- typically 1 percent. That's a very high-end option. They can also be paid a retainer for their services, which is also marketed to the high-net-worth set.

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