Where Should You Turn?

Here's how to get advice for your 401(k)

Maggie Green, a computer software specialist in Oklahoma City, has a 401(k) plan many workers would envy. It offers at least 15 investment options, ranging from aggressive stock mutual funds to low-risk bond funds. But Green, 44, says she's confounded by the choices. "In this type of market, I don't know what to do," she says. After watching the bear market consume a big chunk of her savings, she would like more individual attention--a financial adviser who will examine her portfolio and tell her "where I am and where I want to be."

There's help for bewildered investors like Green, some free and some that costs thousands. Before you do anything, think about what you want from an adviser. No one's going to recover a 50% drop in your account overnight. If all you need is to retool your asset allocation and choose different funds, there's a lot of help at Web sites such as ClearFuture.com or mPower.com (table).

You probably need a flesh-and-blood adviser when things get more complicated. If your plan matches all of your contributions in shares of company stock, if your 401(k) makes up the bulk of your savings, or if your plan has too many investment options or too few, an adviser can help.

Perhaps the best reason to seek advice is the fear factor. "Some investors are so scared when they lose money, they pull out of the stock market altogether and stop contributing to their 401(k) plan," says Gary Schatsky, a New York financial planner. "That's the worst thing you can do." An adviser can hold your hand through the rough times--and help you let go of the dogs in your portfolio. "If your investment has lost 40%, it's already lost," says Michael Scarborough, an Annapolis (Md.) financial adviser. "The only thing you can think of is: `From today forward, how can I make money and limit my volatility?"'

What if your plan has only three mutual funds, and all of them are dogs? An adviser may then develop a "holistic" asset allocation plan, which incorporates investments outside your 401(k), to compensate for its weaknesses. For instance, some companies allow for an "in-service withdrawal," allowing employees to move as much as 50% of their assets into an individual retirement account, which will have a better selection of funds.

If such a withdrawal is not available, the adviser can use nonretirement assets as a balance. Schatsky will often invest the majority of a client's assets in her 401(k)'s bond fund, which typically has lower expenses than the other plan funds and pays income that would be taxed outside of a 401(k). Then in taxable accounts he buys equity funds, which have better track records and lower expenses than the plan funds.

Another common problem arises with employees owning too much company stock. An adviser will usually limit the company-stock allocation to no more than 10% of assets. But some companies match employee 401(k) contributions with company stock and force them to hold the shares till retirement. "Buying a put option is the best solution for these types of situations," says Scarborough. A put option is a financial contract that acts as a hedge against declines in a stock's value. If the stock falls, the put option's value rises.

Finding an adviser takes work. Firms such as Charles Schwab and Fidelity Brokerage Services offer a free one-time portfolio review, and for some people, that may be enough. A detailed financial plan will cost you upwards of $250. If you want someone to manage your money, Web sites can locate advisers in your neighborhood. Some don't charge fees but take commissions on the investments they sell you. More and more advisers, however, are going the fee-only route, charging 1% or more of your assets annually. Advice isn't cheap--but in a bear market, it may be your best investment.

By Sandra Block/USA Today and Lewis Braham/BusinessWeek

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