Having an advisor is no guarantee that a defined contribution plan’s investments will perform well, even when the market does, according to a new paper about to be published.
The paper, “Use of Advisors and Retirement Plan Performance,” will be published in the Journal of Financial Counseling and Planning. It is based on research conducted by Rui Yao, a retirement planning expert in the Department of Personal Financial Planning at the University of Missouri.
In the paper, Yao contends that employees cannot assume that the retirement plan sponsored by their employer is in good hands simply because the plan uses an advisor. They must proactively participate in their retirement planning.
Yao examined retirement plan performance based on the use of plan advisors, plan size and plan choices offered. She found that plan advisors alone are not enough to ensure strong retirement plan performance.
“Plan advisors make recommendations regarding investment options that are offered in the plan,” Yao said in the announcement. “It is critical for plan sponsors that such recommendations are beneficial to participants.”
Yao evaluated retirement plan performance for 2013, 2014 and 2015 and its relationship with the use of advisors, comparing the performance of plans and funds offered within plans against benchmarks. She said she chose this time period due to its considerable market variability.
Her data came from an independent provider of retirement plan ratings and investment analytics. She analyzed 2,000 plans, split evenly into four categories by size, ranging from $1 million to more than $500 million.
After controlling for plan size and use of advisors, Yao found that plans working with an advisor significantly underperformed the benchmark in 2013, the best year in terms of market return.