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May 18, 2005

$10 a month for 401(k) help?

Amey Stone

Would you pay a financial adviser $10 a month to make sure you're on track for retirement? I would. Between my husband and me, we have a hodge-podge of retirement accounts and no idea how much it might all add up to in 25 years.

I met this morning with Christian Echavarria, founder of Invesmart, a Pittsburgh company that provides retirement plans to companies. He came up with an innovative idea -- when employees enroll in their retirement plan, show them how they are doing towards meeting their retirement goals and offer them a $10-a-month service to have the firm's investment advisers manage the account for them.

That's not chump change. But $10 a month seems like a pretty good deal to me -- especially compared to the 1%-a-year asset management fee that many investment advisers charge for essentially the same service. It's certainly far easier to grasp than typical financial service fee schemes. Plus, small accounts and big accounts pay the same amount, reducing the risk that high-net worth individuals will get the best service.

According to Echavarria, many employees seem to like the idea. So far, about 56% sign up for discretionary account management. Even if they don't, he's found that projecting out retirement savings at enrollment gets 44% of employees to increase their contributions, including 24% who had not enrolled at all prior to their company adopting Invesmart's plan (brand-named RightPath).

Many employees elect to have the amount they contribute to retirement increased automatically each year so they can get closer to meeting their goals without experiencing the pain of a big cut in their take-home pay.

I've studied industry research on 401(k) plans that show far too many people aren't saving half what they should (and are investing too conservatively) to ever meet their retirement goals. Echavarria seems to have come up with a business idea that can help more people get the advice they need. You can only take advantage of it if your company happens to sign up with Invesmart. But I suspect his idea just may catch on.

02:36 PM


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Interesting idea. However, $10 per month seems cheap to me.



Posted by: JLP at May 18, 2005 10:09 PM

I think this is a great idea. $10 per month for a service like this is worth it. Would an employee have to ask their retirement plan to get the program?

Posted by: Karyn McCormack at May 19, 2005 10:06 AM

Amy-I love the idea for two reasons. Employees listen and ask much better questions when they pay something. They will look at and talk about their 401k twelve times a year which is eleven times more than most employees look at their 401k now! :)

Posted by: Steve Mertz at May 24, 2005 10:41 AM

I guess I'm skeptical. The overall thirst to hook consumers up to the recurring fee hose so that companies get constant streams of money just doesn't sit well with me.

Are they going to actively manage the account? Probably not, especially not for the people just starting out. If they truly have concern for the consumer, why not just communicate the fundamentals up front, reiterate what consumers should do to reach their goals and hand out a few pamphlets.

For the average consumer, dollar cost averaging in an index fund will do far better for them than listening to most "experts". As they reach the end of their careers and have significant assets, then maybe they should seek out a "fee for service" financial advisor to help reallocate their money to more appropriate holdings. All this could be continually communicated to the consumers via newsletters etc, with the companies help. (The company they work for).



Posted by: Hazzard at July 14, 2005 10:53 AM

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