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Rui Yao, PhD, CFP®

Advisors Not Enough to Guarantee a Strong Retirement

Story by MU News News

COLUMBIA, Mo. – Starting a new job often includes enrolling in a company’s retirement plan. As defined contribution plans, such as 401(k) plans, become more common than pension plans, American workers are increasingly responsible saving for retirement. Rui Yao, a nationally recognized expert on retirement savings from the University of Missouri, suggests that employees can’t trust that the retirement plan sponsored by their employer is in good hands just because the plan uses an advisor. To ensure a strong retirement plan performance, consumers must be active participants in retirement planning, she says.

Rui Yao

In one of the first known academic studies devoted to evaluating fund selection offered in defined contribution plans, Yao, a professor of personal financial planning, examined retirement plan performance based on using plan advisors, plan size and plan choices offered. She found that plan advisors alone are not enough to ensure strong retirement plan performance.

“Plan advisors make recommendations regarding investment options that are offered in the plan,” Yao said. “It is critical for plan sponsors that such recommendations are beneficial to participants.”

Using data from an independent provider of retirement plan ratings and investment analytics, Yao evaluated retirement plan performance and its relationship with the use of advisors, comparing the performance of plans and funds offered within plans against benchmarks. For the study, Yao looked at data from retirement plans from 2013, 2014 and 2015.

After controlling for plan size and use of advisors, Yao found that working with an advisor was significantly and negatively related to retirement plan performance in 2013, the best year in terms of market return. She saw only slight improvements or no significant results in the latter two years when the market was flatter.

Yao’s advice for employees hoping to make the most of their defined contribution retirement plans is to ask a lot of questions — of both their own financial advisors and of their employers.

“Some advisors are incentivized to market different funds, and while they are financial experts, they do not always have a fiduciary responsibility to their clients,” Yao said. “They are required by law to disclose this information, so it’s absolutely ok — and advisable — for plan participants to ask their employer what kind of legal responsibility the plan advisor bares.”

Yao provides the following advice to plan sponsors, plan participants, and participants’ financial advisors looking to strengthen their retirement plans:

  • Plan sponsors should require advisors to provide objective data on a regular basis and disclose this information to plan participants.
  • Plan participants should ask their employer how their plan advisor is paid, how funds in the plan are chosen and how those funds perform against benchmarks.
  • Individual financial advisors should monitor the plan performance and evaluate funds in their clients’ retirement plan portfolio by objective measures, identify performance issues and ask their clients to report such issues to their employer.

“Use of advisors and retirement plan performance,” will be published in the Journal of Financial Counseling and Planning. The MU Department of Personal Financial Planning is in the College of Human Environmental Sciences.


Lu Fan, PhD, CFP®

Financial Education Key to Reducing Student Loan Stress: MU researcher finds that only one-third of borrowers receive education about student loan repayment

Story by MU News Bureau

COLUMBIA, Mo. – It is estimated that a quarter of American adults currently have student loans to pay off, and most do not have the financial literacy to manage debt successfully. The average student in the Class of 2016 has $37,172 in student loan debt. Graduates from the University of Missouri have an average debt of $21,884.

In a new study, Lu Fan, assistant professor of Personal Financial Planning at the University of Missouri, found that borrowers are not receiving adequate education to manage their student debt. She suggests that more needs to be done to educate borrowers about managing debt as well as the various repayment options that might be available to them.

Lu Fan

“A majority of borrowers, 55 percent, reported being worried about their student loans; however, only 30 percent of borrowers said that they had received financial education about paying off their student loans,” Fan said. “Moreover, only 40 percent of borrowers reported having financial influence from their parents. Given the number of people who need student loans to attend college, we need to do better at educating borrowers.”

Using the 2015 National Financial Capability Study dataset, Fan and Swarn Chatterjee, professor at the University of Georgia, found that having student loan debt caused mental stress for borrowers. The researchers looked at more than 2,600 responses from the dataset, focusing on respondents who had a student loan, were between the ages of 24 and 65, were no longer a student, were employed, and were the primary decision makers in their household.

The researchers found that women were less likely to be late on student loan payments but were more likely to feel worried about their student loans. Men were less anxious about their debt and more likely to submit payments late. They also found that people with loans who did not complete college were more likely to be worried about paying off loans than those with degrees.

Fan believes that borrowers are not receiving the information they need to make the best financial decisions, and that policymakers and loan providers should do more to educate borrowers.

“My hope is that policymakers use this information when developing financial educational programs,” she said. ”
Better educational resources created for specific audiences — parents, young adults, women and households that have experienced a drop in income — will lead to more educated borrowers.”

“Financial socialization, financial education and student loan debt,” recently was published in the Journal of Family and Economic Issues.

The Department of Personal Financial Planning is in the MU College of Human Environmental Sciences.


Spotlight on Dr. Deanna L. Sharpe, CFP®, CRPC®, CRPS

Dr. Deanna L. Sharpe, CFP®, CRPC®, CRPS, is an associate professor of Personal Financial Planning who excels in research, teaching, and service. Her research interest includes examination of factors affecting later life financial and economic well-being, as evidenced by her latest publication, a chapter in Client Psychology, edited by Dr. Charles Chaffin of the CFP Board. This chapter, “Client Psychology: The Older Client,” outlines the changing demographics of the older population, age-related cognitive change as found in research literature, the difference between normal and concerning behavioral declines, best practice suggestions for working with older adults, and potential topics for further research.

Dr. Sharpe has been recognized numerous times for her quality research, teaching excellence, and service contributions by organizations such as the Certified Financial Planner Board of Standards, Inc., American Council on Consumer Interests, University of Missouri College of Human Environmental Sciences, and University of Missouri Campus Writing Program.

In her spare time, Dr. Sharpe is a long-time volunteer for Boy Scouts of America.

Deanna Sharpe

book cover


Dr. Graham McCaulley Spoke at the Spring Faculty and Staff Meeting

The Department of Personal Financial Planning’s Office for Financial Success Co-Director Dr. Graham McCaulley spoke at the College of Human Environmental Sciences Spring Faculty and Staff meeting on personal finance updates. Two timely topics were covered – recommended action steps in light of the Equifax data breach and changes to the income tax code from recent legislation. Although roughly half of American’s personal data (including social security numbers) was breached several months ago, the majority of consumers have not taken action to protect themselves from potential identity theft. The Office of Financial Success recommends most consumers place a security freeze on their credit files as well as monitor their current accounts. For more information on steps to take, as well as other topics, visit www.ofsmizzou.org.

Graham McCaulley