Some plan advisors, advisors who help run retirement plans, are paid for bad performance and that could stop you from having a comfortable retirement.

That’s the warning of a new study that attacks a basic assumption of the advisory industry: those investors using an advisor to save for retirement do better than those without one.

Advisors Who Don’t Help

Plan advisors, helping guide 401(k) plans “significantly and negatively” hurt performance in a recent three-year period, according to a new University of Missouri study, “Use of Advisors and Retirement Plan Performance.” 

“It is absolutely a wakeup call for the advisory industry,” said Rui Yao, a co-author of the study and a certified financial planner (CFP).

The study found many advisors lagged benchmarks such as the S&P 500 and the Dow Jones Industrial Average.

Will You Be Able to Afford Chopped Liver?

The investment recommendations of some retirement plan advisors generated inferior returns compared to market indexes over a three-year period from 2013-2015. 

“For example, in 2013, the estimated average treatment effect of advisors was -0.04% in monthly expected returns and this difference would be -0.48% annually.” 

In some cases, over decades, this underperformance can add up to a fifth of a million dollars. That’s not chopped liver.

Oh, It’s not Much. Or Is It?

Indeed, over the long-run as in most retirement plans, this compounding effect “would have a large economic impact,” according to the study.

Even a small underperformance, over the long term, can hurt a retirement plan. Over five or ten years, the effect of 0.48 percent is not big. But over 30 to 40 years, it can be the difference between a comfortable and a difficult retirement. It could mean $200,000 less in retirement savings (see Notes “The Perils of Retirement Plan Underperformance”).

Why are advisors failing; in many cases delivering inferior returns?

Whose Is My Boss? Who Do I Report to and Want to Help First?

Retirement plan advisors sometimes put the interests of an employer ahead of (401(k) plan participants by recommending the wrong funds.

They “are incentivized to market different funds, and while they are financial experts, they do not always have a fiduciary responsibility to their clients,” the study said.

A fiduciary is a legal standard, which some financial professionals have and others don’t.

“I find the report very intriguing and agree with it,” says Charles Hughes, a CFP in Bay Shore, New York. He is one of the founders of the financial planning movement. Hughes has pushed for a fiduciary standard. 

The problem, Hughes adds, is some plan advisors see their first loyalty to the broker. Another advisor wondered about the legal accountability of plan advisors.

What Comes First?

Henry Hoang, a CFP in Newport Beach, California, says good plans are properly structured. “The first crucial step is to set up the plan correctly initially to avoid conflicts of interest between the advisor and client,” he says. 

“By taking full fiduciary responsibility and removing incentives for choosing select funds, an advisor can keep her sole focus on quality advice,” according to Hoang.

When plans underperform, Yao adds, plan participants should ask employers why. And they should also understand that even a little bit of underperformance, over a long period, can add up to quite a lot. Indeed, it can be the difference between a happy, secure retirement or one in which you and your significant other are constantly required to watch every expenditure.


The Perils of Plan Underperformance.

Even just a half of one percent adds up over decades.

The power of compounding works against you when your retirement plan doesn’t get the best results. 

The longer the underperformance, the worst your final numbers. Say you put $250 a month into your 401(k) and, instead of getting 10 percent a year, your advisor only gets 9.5 percent.

*After 20 years, you receive some $11,861 less.

*After 30 years, you receive some $56,000 less.

*After 40 years, you receive some $222,000 less.


Gregory Bresiger
Gregory Bresiger

Gregory Bresiger is an independent financial journalist from Queens, New York. His articles have appeared in publications such as Financial Planner Magazine and The New York Post.