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Investors Who Receive Advice Build Better Portfolios

For years, one of the biggest knocks against 401(k) plans has been that few participants have the financial savvy to properly invest their own money for retirement. Time and technology led to a partial solution in the late 1990s when independent companies such as mPower and Financial Engines developed powerful computer-based investment advice programs that could be delivered to plan participants economically via the Internet. Still, use of those systems has remained relatively low-many plan sponsors still don't offer them, and among plan participants who do have access to the programs, only about 20% to 30% actually take the time to try them out.

The good news, according to retirement services provider CitiStreet LLC, is that participants who do use advice become better investors as a result. A joint venture between financial services giants CitiGroup and State Street Corp., CitiStreet services more than 17,000 defined contribution retirement plans with more than seven million participants. Its CitiStreet Advisors subsidiary provides investment advice to participants in those plans, either online or through a call center in which CitiStreet advisors have access to work stations powered by Financial Engines. CitiStreet claims to be the first benefits provider to take advantage of a Department of Labor Advisory Opinion issued in December 2001 that allows benefits providers like it to offer investment advice to plan participants, provided the advice is based on the computer programs and methodology of a third-party independent advisor.

CitiStreet Advisors President Ray Martin says seven out of ten retirement plan participants who work with a CitiStreet advisor increase their savings rate as a result of that consultation, with the average increase about 150%. Meanwhile, 75% adjust their portfolios to align them more closely with their own risk profile. Advice users significantly increase the likelihood of reaching their financial goals in retirement, concludes Martin.

Stable Value funds, Martin insists, are an important part of the defined contribution plan landscape. He says effective investment advice recognizes that, but also encourages the proper use of Stable Value investment options within the context of a well-diversified portfolio. While his firm's advisors discourage 401(k) investors from trying to time the market using Stable Value funds, he says they also try to educate plan participants on the proper role of Stable Value in an asset allocation strategy. "Ultimately," he concludes, "we think investment advice creates a more 'stable' Stable Value investor."

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