What’s the difference between financial coaching and financial counseling through my retirement program?
A lot of employers have the same objection to the on-demand financial coaching element of our program. They often have retirement plans that offer financial counseling free of charge to their employees. Retirement advisors help employees select and manage the investments in their 401(k) or 403(b) retirement accounts.
However, there are 3 main reasons why you shouldn’t rely on your retirement plan advisors to help your employees improve their financial health.
Retirement advisors are usually salespeople
Yup. The crazy thing about the financial services industry is that salespeople call themselves advisors. This doesn’t mean they’re bad people, it just means that the end goal of each counseling session is to get your employees to purchase more of a product or service that earns them a commission.
Retirement advisors aren’t legally required to act in your employees’ best interest. They’re legally held to a standard called “suitability,” which means they only need to provide advice deemed “suitable.” For example, say an employee is considering investing their retirement funds in a low-cost mutual fund or ETF. Their advisor might dissuade them from choosing the low-cost fund in favor of an investment that is similar but earns the advisor a commission. This is legally acceptable, even if the fund the advisor suggests has higher fees that will eat into the returns.
Tip: Jill Schlessinger, CBS News Business Analyst and Certified Financial Planner, has a great post on questions to ask your financial advisor where she dives into the difference between those held to the suitability standard and those held to the fiduciary standard.
Most people aren’t ready to talk to an investment advisor
Most employees aren’t ready to receive investment advice. They likely need a financial coach more than a financial advisor, regardless of whether they adhere to a fiduciary standard or not. They likely need a financial coach to help them with the basics like budgeting, savings, and setting financial goals.
Retirement advisors only focus on getting employees to contribute more to their retirement or utilize other products and services they offer. A financial advisor won’t help your employees create a financial plan if there’s no commission involved.
Retirement advisors aren’t financial coaches
Financial coaching is different from advising. Financial coaches will help your employees manage and improve their everyday financial lives, while advisors provide investment strategy.
People need help getting their financial life in order before they can achieve their financial goals. Often, they haven’t even thought about what those goals are and what those goals can be. A financial coach can help them define their goals and act as a cheerleader and a guide along the way to achieving them.
Retirement advisors don’t have any training in helping people manage their money, they simply tell people who already know how to save money where they should invest it.