Employer financial offerings a mixed bag

May 8, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Some advisers see financial products and services provided to their clients by employers as inadequate and top-heavy with fees. Others, however, view them as useful adjuncts to the plans they devise.

About two-fifths of employees said they bought more financial protection - including insurance policies, banking services and investment advice - through their employers than from advisers, agents and other sources.

That was among the findings of the Employee Benefits Trend Study, which was released last month by MetLife Inc. in New York.

"The problem with employer-provided products is that the human resources department is usually in charge of them," said Bedda D'Angelo, president of Fiscal Conditioning Inc., a Chapel Hill, N-.C., firm with $15 million in client assets. "Most HR people don't know the difference between the S&P 500 and the Indy 500."

"While the employer plans can be viewed as competition, they can also be an opportunity," said Beau Adams, vice president of business development for BCG Securities Inc. in Delran, N.J., which manages $1.5 billion. "Most advisers will take the employer-provided programs and make them part of the overall financial plan."

For instance, the employee may have employer-provided life insurance with a limit of one- to three-times salary, and the adviser will add a policy giving the employee the generally recommended limit of seven- to 10-times salary.

However, there's the danger that employees can be turned off to certain products - such as long-term-care insurance - because the employer doesn't know how to convince employees that the coverage is needed, according to Mike Ackerman, principal of Integrated Benefit Services Inc., an employee benefits firm in Radnor, Pa.

"Employees across all life stages are viewing the workplace as the site of choice for purchasing investment and protection products," said Ben Colvin, MetLife's vice president of institutional marketing.

An outgrowth of employees' appetite for workplace financial products -which often are sold without accompanying advice - is low confidence in their ability to make financial decisions without advisers, the study found.

"When an employee seeks out their employer for financial advice, it's usually a trust thing as opposed to a cost thing," said Mr. Adams. "They go to the employer, which they believe to be a source of financial knowledge, whether that assumption is valid or not."

The employer typically pays for advice related to investments in a 401(k) or other retirement plan, while the employee often pays for advice related to other aspects of personal financial planning, such as Section 529 plans, Mr. Adams noted.

Only about one-third of employees were confident that they could make good financial decisions without an adviser and said that they wanted their employer to provide access to a financial planner, the study found. However, employers didn't seem to be responding to their employees' hunger for financial advice, as only 14% identified "helping employees make better decisions" about their finances as a "very important" benefit.

"Employers should provide targeted benefits education, especially at times of key trigger events such as getting married, buying a home or having a child," said Mr. Colvin.

But depending on advice by employer-provided or employer-recommended planners can be a big mistake, according to Ms. D'Angelo.

"Many employees are financially naive and may not realize that what's being recommended to them is loaded with fees and that they are paying full retail commissions," she said. Most of the employer-provided advisers are salespeople, not fiduciaries, she added. "Until the employers are held legally liable for the advice, its quality probably won't change."

"Some employers give perks to executives that may include stipends to buy estate planning and legal services," said Mike Maher, a principal of Valley Forge Investment Consultants Inc. in King of Prussia, Pa., which manages $500 million.

An employer may give executives a certain sum, usually about $10,000, to spend on planning services, Ms. D'Angelo said. "Unfortunately, the executives often waste the money by going to firms that sell them off-the-shelf products rather than provide true financial planning."

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