Help is On the Way for Small Business Employees Whose 401 k Plans are Under Water.

Business Editors

LOS ANGELES--(BUSINESS WIRE)--Dec. 6, 2001

Business owners get smart and turn to fee-only advisors for

investment expertise and access to less expensive

institutional mutual funds

With investment returns lagging the market and a growing awareness of the high costs associated with most 401(k) plans, small businesses with fewer than 100 employees are turning to fee-only advisors for assistance with their employee retirement plans.

"Many plans are paying total annual fees of up to 3 percent of the plan's assets," according to Dan Wheeler, the director of financial advisor services for Dimensional Fund Advisors. "If these costs are reduced by as little as 1 percent, a 25-year-old employee, earning a basic market rate of return, will see an increase of over $800,000 in her retirement plan assets when she retires at age 65."

Dimensional Fund Advisors has created a cost-effective way for financial advisors to manage 401(k) plans. Previously these small plans were very difficult for advisors to manage because of the complexity and costs associated with coordinating the services of record keeping, administration and custody.

Today, service providers such as Benefitstreet, First Mercantile, Investmart and TeamVest have joined with DFA to provide these services in an extremely efficient and cost-effective manner enabling the advisor to give employers and employees a successful investment experience with their 401(k) plans.

"This year many employees are very disappointed with the performance of their 401(k) investments, and employers, concerned about their fiduciary obligations, are moving toward hiring fee-only advisors to help reduce costs, better manage risk, improve returns and reduce their liability exposure," Wheeler noted.

"This market represents $250 billion in assets and is critically underserved," Wheeler added. "People deserve better products and expert advice when it comes to investing their retirement funds."

According to a recent Plan Sponsor Report, the average 401(k) participant balance rose 27 percent in 1999 and fell 15 percent in 2000. "Most employees would be better off throwing darts to select their 40l(k) investments," said Wheeler.

Smart companies are engaging fee-only financial advisors to educate their employees regarding fundamental investment principles such as diversification and the need to stay disciplined. These are critical issues when you consider that 80 percent of 401(k) plan participants never "rebalance" their account and 36 percent of participants invest in only one fund.

DFA was founded in 1981 by David Booth and Rex Sinquefield, co-chairmen, to apply academic research to the practical world of investing.

The firm maintains close ties with the University of Chicago Business School and other key research centers. The firm's board members and consultants include the University of Chicago's Eugene Fama and Nobel Laureate Myron Scholes, as well as Dartmouth College's Kenneth French and Yale University's Roger Ibottson.

As of June 30, DFA managed more than $36 billion for 125 institutional clients and thousands of retail clients through professional financial advisors. The firm has offices in Sydney, Chicago, and London, in addition to its Santa Monica headquarters.