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The Difference Between Investment Education and Advice

Question: What is the difference between investment education and advice and what are the potential risks to my organization should we decide to offer such a program?

Answer: The distinction between investment education and advice is an important one. When evaluating an advice or education provider, you should clearly understand they type of service being offered to your employees and be aware of any inherent bias that could pose a risk to your organization.

Advice is most often offered on-line or with financial professional. In any case, significant detail about an employee's personal finances, goals and risk tolerance are gathered in order to make projections. Employees can be provided with graphs, charts and even a financial plan that recommends specific asset allocations, investments and/or diversification strategies. In some cases the financial professional can even take action on the employee's behalf.

Education can take many forms, the most popular including workshops, phone support, on-line tools & content, printed materials, audio CD's and even face-to-face sessions with an expert. An education provider typically offers steps on how to evaluate and determine appropriate asset allocations, investments and/or diversification strategies. Unlike advice, education provides the tools and framework to make solid decisions and the employees takes action on their own behalf.

The following chart further explains the differences between education and advice and explores risks of each option.

  Advice Education and Guidance
Biased or Conflict
Represents or makes money from the sale of financial products & services
High Risk

Advice provided is often motivated by product sales, creating a natural conflict of interest.

The following conditions can create significant liability for companies who use biased advice providers:

  • Advice provided is inappropriate based on the individual's financial concerns and goals.
  • It can be demonstrated that such advice was given with the goal of generating additional revenue for the investment advisory firm providing the advice.
  • There is a perception that the company "endorsed" the advice provider-by offering no alternative providers or no education and by offering planning sessions on site.
  • Moderate Risk

    Education carries less liability than advice, but there is still the risk that the firm providing the education uses false or misleading information to encourage employees to make investments in its financial products and services.

    The following circumstances can create increased liability for companies who use biased providers to provide financial education:

  • In order to sell additional financial products or services, inaccurate or misleading claims are made about specific investment products or services.
  • These misleading claims cause employees to make investments they would not otherwise make.
  • The employees end up losing money as a result of these investments.
  • Unbiased
    Does not represent or make money from the sale of financial products & services
    Some Risk

    Examples include:

  • Unbiased online advice engines companies provide to employees to help with asset allocation
  • HR managers who unwittingly recommend certain funds to employees based on their own experiences or opinions

    * In any case, inappropriate advice resulting in employees losing significant amounts of money, creates a potential for lawsuits.

  • Lowers Corporate Liability

    Education free of bias, so there is no risk of misleading claims or inappropriate advice designed to get employees to purchase certain financial products and services.

    By providing employees with the education they need to make informed investment decisions on their own behalf, companies actually lower the liability associated with financial benefits, even on-site financial planning programs and advice.

    About Financial Finesse: Financial Finesse is a full-service unbiased financial education company that works with Plan Sponsors and Plan Advisors to design company and plan-specific financial education programs that address the gamut of plan participant and business needs. Our award winning financial content is delivered in multiple formats: live, online, telephone, and through financial planning kits. If you are interested in learning more about workplace financial education programs, contact one of our education consultants at AskFF@financialfinesse.com.

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