New Study Further Links Participants Using Professional Help with Improved Performance

A new five-year study by Aon Hewitt and Financial Engines indicates defined contribution plan participants who use help from financial experts improve their returns—particularly during times of financial turmoil.

The September 26, 2011 issue of Pensions & Investments featured an article entitled, “A little help here: Advice aids DC participants’ returns” by Robert Steyer. This article references a new study by Aon Hewitt and Financial Engines that covers the five-year period between January 1, 2006 and December 31, 2010 –a unique time in American financial market history.

According to the study, defined contribution participants who received investment help in the form of target-date funds, managed accounts or online financial advice during this time period outperformed “non-help participants,” by nearly 3% (292 basis points) net of fees annually. Steyer explained that 30 percent of participants used at least one form of help during 2010, compared with approximately one-quarter that used help at the end of 2008.

Economic Crisis Magnified Performance Gap

The widely divergent market returns between “help participants” and those without help was most evident during 2009 as the stock market rebounded from the depths of the 2008 economic crisis.

For the article, Steyer interviewed Christopher Jones, chief investment officer of Financial Engines, who aptly described the hasty investment decisions made among “non-help participants” as asset values plummeted: “It was like reverse market-timing … they pulled out of equities and went into fixed income. And then they stayed in fixed income during the [stock market] run-up. In effect, they were locking in their losses.”

Inappropriate Risk Levels Negatively Impact Returns

Furthermore, Jones noted, “non-help participants” frequently had portfolios with inappropriate risk levels relative to their time horizons, which negatively impacted returns. For example, participants often were too conservative early in their careers and then assumed too much risk near retirement—especially in company stock investments.

General Board retirement plan participants are fortunate to have two options for accessing professional financial advice targeted to their personal situations. As discussed in Participants Who Utilize Professional Help Reach Better Retirement Outcomes, eligible participants may enroll in the General Board’s managed account offering, LifeStage, for professional account management, as well as seek advice through Ernst & Young Financial Planning Services.