Carroll College and Francis Investment Counsel Announce Study Finds 401(k) Advice Improves Employee Investment Returns.

MILWAUKEE -- A first-of-its-kind study sponsored by Carroll College of Waukesha, WI, found that employees who received face-to-face investment advice on their retirement accounts achieved an annual investment return 2.5 percentage points greater than those employees who did not receive any education or advice.

The independent study, conducted by Kelli B. Send as part of a thesis for a Master of Education degree, attempts to identify the impact of workplace financial education and advice programs on 401(k) participant rates of return. It was a group comparison study with participation from two Midwest-based employers. One organization was largely professional, the other a unionized manufacturing group. The sample size provided a 95% confidence level that sample returns were within a half of a percent of the actual population returns.

"Over two extra percentage points of return per year is significant over the long run," says Ms. Send. "We're talking about plan balances at retirement being potentially 50% greater due to the improved long-term returns."

The study also found that employees who participated in group retirement sessions and received individual investment advice invested in a total of 7.8 mutual funds, versus 5.6 mutual funds for those employees who utilized group retirement education alone and 5.3 mutual funds for those employees that did not receive any education or advice.

This diversification resulted in reduced portfolio volatility for those employees who received investment advice. The participants with the larger number of funds (7.8) experienced less variance in returns (0.19%) than their counterparts who received only group education (5.6 funds with a variance of 0.26%) or those who received no education or advice (5.3 funds with a variance of 0.27%).

Says Ms. Send, who also leads the participant education efforts for Francis Investment Counsel, "As employer-sponsored retirement plans evolve from employer-controlled to employee-controlled, proper education of plan participants has become a critical issue for workers, their employers, and the nation.

The study results, coupled with my experience of educating tens of thousands of retirement plan participants over the past decade, clearly suggest that providing employees with financial education through group meetings alone does not significantly impact investment returns or diversification. Financial education programs that include face-to-face advisory services produce superior investment results for retirement plan participants."

Additional evidence exists. The Quarterly Journal of Economics Vol. 116(4) reports a study of a company who enlisted a financial educator to provide a one-hour retirement savings seminar. In an evaluation at the seminar's conclusion, virtually all of the non-saver attendees indicated they planned on enrolling in the 401(k) plan presented, but only 14% actually joined the plan. Of those seminar attendees already saving, 28% reported intentions to increase their contribution rate; however, only 8% increased their contribution rate.

According to the Employee Benefit Research Institute, workers are most likely to find helpful those educational formats that allow them to ask questions and provide personalized materials. Further, workers stated that educational formats in which they can interact with an expert and have their questions answered are the most helpful.

"It's important to offer retirement plan participants electronic tools and information," says Ms. Send. "But experience has shown that only a fraction of the workforce population is comfortable with that approach. By far, face-to-face is the preferred method of receiving financial education and advice."

Carroll College, located in Waukesha, Wisconsin, was founded in 1846. Carroll College is a private coeducational comprehensive college with a curriculum grounded in the liberal arts.

Francis Investment Counsel LLC (www.francisinvco.com) is a Wisconsin-based Registered Investment Advisor focused solely on providing independent investment consulting services to retirement plans. The Firm delivers conflict-free investment advisory services to plan sponsors as well as education and individualized advisory services to plan participants. The firm consults to plans with more than $2 billion in assets.

For a copy of the study results or to speak with Kelli B. Send,
contact:
Stephanie Truog, Francis Investment Counsel LLC
[phone]