By Chuck Yanikoski
Sure, we know that some DB plan participants receiving lump sum offers don’t need advice at all. Sometimes the distribution is too small to matter, or the participant’s personal situation makes the right choice glaringly obvious. But these are the exceptions.
Most plan participants do need advice, and so the question is: what kind?
There are two main kinds of advice: personal and impersonal. Personal advice means a personal adviser, though the transmission of the advice may be face-to-face, over the telephone or internet, or in writing. There are important and mostly obvious benefits to such advice, in that it:
But impersonal advice, which includes both general information (in print or online) and analysis and reports from financial software, also has its advantages. It can:
So there’s a place (and a need) for both kinds, not only because they have different and complementary benefits, but also because different people understand and/or respond better to different kinds of advice.
Also consider that advice can be categorized in other ways. One important distinction is qualitative vs. quantitative advice. An advantage of personal advice is that live advisers can provide either kind, or both, as needed.
Impersonal sources can also do both, but usually different methods are required for each.
Qualitative advice from impersonal sources usually involves written explanations of issues that participants need to understand, such as what a lump sum offer means, what the principle options are, the pros and cons of each, and how to weigh these in real-life situations. Still, the content is boilerplate.
Quantitative advice from impersonal sources involves tools such as worksheets and software. These either allow plan participants to crunch the numbers or do it for them. Such tools, especially software tools, can give the participant access to useful, even sophisticated, analysis that responds in a detailed way to the individual situation.
In principle, the best approach is to combine all of these options. In a perfect world, each plan member would have a personal adviser who’s an expert in lump sum distribution decisions, and who has at his or her command a variety of printed and online resources that provide detailed information on any question the participant has, plus software that can deeply analyze each individual situation in the broad context of the participant’s financial and family situation.
In reality, this rarely happens because neither time nor money is available to provide it all. And yet, as we well know here at CREWS, there are practical, cost-efficient ways of approximating this ideal.