Is there a need for financial planning programs?
The need for employees to plan financially for retirement is assuming a greater importance than ever as more and more organizations switch to 401(k) plans and away from offering defined benefit retirement plans for their employees. Numerous studies show that employees in these situations are not saving enough for retirement. But, although there is a growing need for financial planning information, employers need to be careful not to provide what is considered "investment advice" under ERISA because they may incur liability for poor advice. To shield employers from liability, employers should contract with financial service vendors to offer planning services to their employees.
The traditional notion of financial counseling involved finding and recommending various tax shelters. However, financial counseling services have expanded to include advice on the role of benefits as a financial resource, life insurance coverage, asset allocation and alignment of an overall investment strategy with the employee's life-style and goals, estate planning services, tax planning, cash and debt management, and insurance of assets. Financial counseling services could offer recommendations or recommendations plus implementation.
Tailoring a financial planning program to employee demographics is important to the success of the program. If an organization has a large number of people starting out in their first jobs, for example, fundamental financial education is likely to be necessary.
When designing a financial planning program, keep these pointers in mind:
Financial profiles. A complete financial counseling service will offer precise information based upon a detailed analysis of the client's financial profile. Advice should be specific, for example, not only telling the client that he or she needs more life insurance, but also detailing what types of coverage should be pursued and the best companies to contact for that type of service.
Recommendations. Recommendations from a reputable service should be well-organized and understandable. The report should include immediate recommendations that the client should attend to as soon as possible, such as increasing liquidity or adjusting tax planning. The report should then deal with estate planning and give suggestions on long-term investment strategy designed to achieve maximum growth of the client's assets.
Selecting a financial consultant. In selecting the financial consultant to be offered to employees in a benefit and services package, care should be taken to ensure that the service meets the needs of employees. The financial counseling vendor should also be able to deliver a consistent approach --a consistent message across employee locations and among all segments of the employee population.
The financial counseling vendor's level of objectivity and independence is another important issue for employers to consider. An important point is whether the service is primarily interested in exploring the most advantageous financial paths for the individual, or whether it is a "captive" service that is interested in selling some type of follow- up service such as mutual funds, credit services or insurance policies.