I think we can all agree our retirement planning would be a lot easier if we had good, specific and unbiased advice about how best to manage our 401(k)s.
But laws that protect us from advice that isn't unbiased also have made it very difficult for us to receive any useful retirement investment advice through our employers and the companies they hire to provide our retirement accounts. (A company can give us access to independent fee-for-service advice, but that's a different story.)
Monday, the U.S. Department of Labor changed the game plan and issued a new rule that allows 401(k) and IRA investment advisers to give advice to the people investing in the plans -- even if those advisers receive fees from the companies providing the investments -- as long as they meet one of two conditions:
- The investment advice is based on an unbiased computer model
- The adviser's compensation is not affected at all by the advice he gives
The Labor Department estimates that just eliminating basic investment mistakes like poor diversification could improve returns by between $7 billion and $18 billion annually.
Aon Hewitt/Financial Engines recently examined the impact of professional investment help on the 401(k)s of employees at eight companies. The study found that workers who got help between 2006 and 2010 -- a period of great volatility -- experienced annual returns nearly 3 percent higher (292 basis points, net of fees) than those individuals managing their 401(k)s on their own.
Nothing to sneeze at.