Big Blue announced mid-March that it has hired Fidelity Investments and The Ayco Company (a Goldman Sachs subsidiary) to offer financial advice to its U.S. employees. IBM's move may be a first for a major U.S. company. After all, we're talking about individualized financial-planning advice — things like college savings, retirement savings and debt management — not just online tools, and not just 401(k) investments.
That's good news for financial advisors because it suggests they may have similar opportunities at other companies in the near future. Until the Pension Protection Act (PPA) was enacted last year, many employers were leery of allowing advisors to provide investment advice directly to their employees because, under ERISA, the employers faced legal liability if any of the advisors' recommendations soured. But under the PPA, ERISA was amended, freeing employers of that liability as long as the advisor in question agrees to take on fiduciary responsibility for the advice he offers. Still, some employers remained hesitant. But IBM's decision may help calm remaining fears.
For those advisors willing to take on fiduciary responsibility, the 401(k) plan world represents a huge opportunity. It is vastly underserved, with workers everywhere baffled about how to pick investments, and companies (small ones, at least) stumped over how to build a defined-contribution plan. And more employees are participating than ever, because the PPA also stipulated that plans can offer automatic enrollment with an opt out.
“The advice biz within 401(k) plans is going to grow substantially,” says Chip Roame, managing principal of Tiburon, Calif.-based Tiburon Strategic Advisors. But advisors who want in on the game may want to act sooner rather than later. According to a recent PricewaterhouseCoopers survey, only 27 percent of CEOs of “fast-growth companies” say they are knowledgeable about the PPA's guidelines. But 80 percent of respondents have already retained advisors to help manage their 401(k) plans. Fourteen percent were without an investment advisor.