MANY, IF NOT ALL, HR departments at colleges and universities offer some type of financial education to employees. This can cover everything from how a retirement program operates to describing investment options. But at what point does financial education turn into financial advice? And does crossing that line, which often is blurry, position a school as an organization that cares about its employees, or expose it to potential employee lawsuits?
Not everyone is in agreement. Paul Strebel, a partner at Strebel Planning Group in Ithaca, N.Y., and an adjunct lecturer on financial planning and wealth management at Cornell University, believes schools enter dangerous territory when they cross that line.
"If you offer advice, you have to understand the participant's situation fully," he says. In other words, does the advice giver have a complete understanding of each employee's risk tolerance, balance sheet, asset allocation, diversification of assets outside the plan, and goals and objectives? "If you don't understand all of that, you're providing advice in a vacuum," he adds.
Employees will inevitably
ask HR staff questions
like, "Should I buy this
stock or that one?"
Instead, Strebel suggests that HR professionals stick to offering information in four basic categories:
Plan information. This may include explaining the plan's benefits, the impact to employees of increasing their contributions, and the types of investment alternatives offered by the plan.
General financial information. Financial educators may introduce general financial concepts, such as the relationship between risk and return. Other key concepts include the importance of diversifying investments, the effects of inflation over time on investments, and how employees can assess their own risk tolerance. HR must ensure that a presenter of financial information is unbiased or has no ties with any particular plan, stock, or compensation arrangement.
Asset allocation models. Providing employees with hypothetical situations, each reflecting different risk levels, investments, and investment goals, allows them to compare their situations to the people in these mock scenarios and choose what the best options are for them.
Interactive computer models. A computer simulation may allow employees to plug in their age and the amount of money they want to invest to see if they'll have enough for retirement.
Despite all of this information, it's inevitable that employees will still ask HR staff questions like, "Should I buy this stock or that one?" Some HR managers and executives are tempted to answer because they want full participation in their plan. By handing out free advice, they think, their employees will be more inclined to invest.
Others resist this temptation because they're fearful of lawsuits filed by employees who have lost money based on that advice. But there may be some employees who still sue because no advice was ever offered. Their defense? "You didn't offer any advice, so I took the information you gave me and made some wrong decisions, which cost me money."
Considering the controversial business of giving advice these days, the reality is that no matter what HR does, the department-and the institution-could still land in trouble. The only point everyone agrees on is that employers have a fiduciary responsibility to their employees. But how that's interpreted and applied differs from school to school.
"It's a very gray area," says Strebel, who is also a certified financial planner and certified public accountant. "Employers are aware that there's this line, but it's so gray, they're not sure where the line is."
THE OTHER SIDE
Making matters more confusing is the opinion of Peter Gulia, an Employee Retirement Income Security Act (ERISA) attorney who also founded the Fiduciary Guidance Counsel law firm in Philadelphia. Gulia says there may be no difference between investment education and investment advice.
Why? He says those labels relate to Department of Labor interpretive bulletin 96-1, which describes the types of employee communication or information that the DOL believes is not investment advice. The bottom line is that this is merely the DOL's opinion, not anything a federal court would have to enforce. As simply a form of guidance, a court may or may not agree with it.
