Use of Advisors and Retirement Plan Performance

Abstract

As defined contribution (DC) plans become more popular than defined benefit (DB) plans, American workers are increasingly responsible for their retirement savings. Because retirement plan participants’ portfolio allocation is constrained by the available funds in the plan, the construction of a plan’s investment menu has become extremely important. No research has evaluated fund selection in retirement plans or compared plans involving an advisor with self-directed plans. To fill this research gap, this study employs cross-sectional, nationwide data that include 5,570 retirement plans with 100 or more participants in 2013, 2014, and 2015. Results show that in most cases, using advisors is not related to plan performance. Plan sponsors should require advisors to periodically evaluate the performance of plans under their management using objective measures.

Financial Advice Use and Saving for Children’s College Education: A Propensity Score Matching Approach

“…Compared to the literature, our results do not align with those of Mountain (2015) and Yao et al (2020) who ascertain that financial advice does not always lead to positive financial outcomes. However, our findings reinforce those of several existing studies, highlighting the need for financial advisory services to assist individuals in cultivating appropriate financial behaviors.…”

“…Consequently, this study estimates a propensity score analysis treatment effects model to correct for biases in model estimators due to the potential nonrandomness of the selection process. Studies such as those by Marsden et al (2011), Kim et al (2018), andYao et al (2020) estimate similar models to handle the perceived self-selection problem relating to financial advice.…”

“…Research findings on financial advice and behaviors have been mixed, with some studies reporting nega-tive financial outcomes (Mountain, 2015;Mullainathan et al, 2012;Yao et al, 2020). However, several studies suggest that financial advice is beneficial, particularly when the interests of both the professional financial advisor and client are aligned (Finke, 2013;Pearson, 2020;Winchester & Huston, 2014).…”

Managing Islamic Financial Planning Inclusion in Indonesia

“…In an example, because the allocation of pension portfolio for employees is limited, thus the preparation of the investment plan becomes very important. Employers should ask advisors to periodically evaluate the performance of the plans under their management by using objective measures (Yao et al, 2020). Professional financial planners can also provide advice to the public / workers to decide on a pension program that suits them.…”