How do 401(k) participants make decisions about their investments? Learn more about plan participants and their experiences with advisors and/or plan providers.
How do 401(k) participants make decisions about their investments? Do they use an outside advisor or do they rely upon advice provided by the plan provider? Is it a waste of time for advisors to prospect with retirement plan participants?
In a recent study conducted by Spectrem Group, it was found that participants definitely need the help of an advisor, and most find the information provided by their plan provider to be lacking. In fact, about 40 percent of retirement plan participants will use an advisor to help them make decisions about their retirement plan investments as well as any outside assets they may have. The study was conducted in the first half of 2012 with 1,583 individuals currently contributing to a defined contribution plan.
Retirement plan participants that choose to engage an outside advisor for help with asset allocation within their retirement plan generally purchase additional products and services from that advisor. In fact, 45 percent of plan participants that have an outside advisor have purchased additional products and services from that advisor within the past year. That number increases to 67 percent for those participants that have balances in excess of $100,000. Men are more likely to purchase additional services than women.
Additionally, plan participants who work with an outside advisor believe they have become more knowledgeable about investments because they have worked with an advisor. In fact, 83 percent of those participants working with an advisor feel they are more knowledgeable about investments. This is an important factor in an environment in which many participants feel confused about investments.
Advisors that are seeking opportunities with plan participants need to focus on a few variables:
Women are more likely to be seeking advice about their investments than men.
Participants with larger balances are also likely to be thinking about retaining an advisor. Generally participants with large balances either have large outside portfolios or they may be approaching retirement and will need rollover assistance.
Middle aged mid-tier employees provide potential growth opportunities for advisors ready to form a relationship while they are still in wealth building mode.
Plan providers are not meeting the needs of plan participants who are seeking investment advice. This provides numerous opportunities for advisors who are able to provide an alliance for a provider or even able to form a relationship with a plan sponsor. Receiving adequate advice regarding retirement investments will become increasingly important in the future.