401(k) advice and legal liability

[slazenger]

Question for you guys:

I've become the office guru of late where several guys and gals ask me for advice on how to allocate their 401(k)s in terms of percent in stocks vs. bonds, etc. Fortunately, or perhaps unfortunately, several of them listen to me and end up setting their percentages based upon my advice. However, my/our jobs have nothing to do with this and I'm not a trained professional.

My question is, do I potentially set myself up for being legally liable if someone ends up losing a lot of money, say, because stocks tank if I recommended a high stock allocation? Has anyone ever heard of that kind of lawsuit?

Thanks!

[target2019]

I think it's a mistake. Easy enough to find a way to back out of the role. Send the questioners to online forums and publications so that they educate themselves, probably as you have done.

[Walt34]

I doubt you have any legal liability - you're not charging for the advice and they requested your opinion, which is worth exactly what they paid for it, and you're not holding yourself out as a professional investment adviser.

That said, if those investments head south it could make for some inter-office tension.

[LOL!]

Are you a member of the company's 401(k) committee with fiduciary responsibilities? If so, then yes.

I tell people, "This is what I do, but everyone has to make up their own mind. Here are some books to read. Go to bogleheads as well."

I also give them a broad range of choices, so my advice is virtually useless. For example, "If one likes risk, maybe you go 30% bonds and 70% equities, but if one doesn't like risk, maybe you go 70% bonds and 30% equities. You have to decide for yourself."

[yakers]

People need to understand that they make their own decisions. I get ideas from various places including the VG/Boglehead site and this one. I actually chose VG Wellesley and a bond fund (GIM) because I was exposed to them here. But I am responsible for whatever I do with the ideas I encounter.

[travelover]

I'd second the interpersonal liability. Once someone gets you to "tell them what to do", they'll consciously or subconsciously think you screwed them when the market goes down, which it inevitably will. A corollary of the no good deed goes unpunished rule, I think.

[kaneohe]

Of course this is America where anything is possible including suing anybody for anything and while the chances of success are questionable, you'd probably be miserable while you were in defensive mode, including legal costs,etc. and while you might recover those IF you won, that uncertainty would be there.......might be better to teach them how to fish rather than just give them the fish as others have said.

[slazenger]

Thanks for the advice guys, and I pretty much agree too. I just needed to hear it from someone else.

I'll stick with only discussing it when asked, and if I'm asked, just suggesting that they consider one of the age-appropriate target retirement funds. I prefer to tinker more than that, but when it comes right down to it, one has their work cut out for them just to beat a target retirement fund.

[travelover]

Quote:

Originally Posted by slazenger Thanks for the advice guys, and I pretty much agree too. I just needed to hear it from someone else. I'll stick with only discussing it when asked, and if I'm asked, just suggesting that they consider one of the age-appropriate target retirement funds. I prefer to tinker more than that, but when it comes right down to it, one has their work cut out for them just to beat a target retirement fund.

I think it is best to tell them where to look for good advice and what to look for. Most will not seriously pursue it, for whatever reasons. You can be at peace with yourself for helping, but avoid the negative downside of being too close.

[W2R]

People talk about their 401K allocations all the time. I am not a lawyer, but it seems to me that all you have to do is change,

"Put 10% in the XYZ fund and the rest in the ABC fund" to

"If I were in your situation what I would do is put 10% in the XYZ fund and the rest in the ABC fund".

As far as I know, nobody can sue you for mentioning what you would do in a hypothetical situation.

[LOL!]

Sure they can sue you. Suppose you are Ken Lay and you say, "If I were in your situation, I would purchase lots of Enron stock."

[jIMOh]

I assume you want to help, but do not want any liability as a result.

I would always give vague answers and percentage ranges.

For example put between 30-45% in fund A
put between 10-20% in fund B
make sure you have at least 25% combined in funds C and D, with at least 10% in C.

that way the advice is still general
but having 30% in large caps or 45% in large caps (for example) should not skew the performance too much.