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Schwab Survey: Advice Users Save More

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Producers aiming to deliver their services through 401(k) plan sponsors might consider adding this fact to their marketing pitch: Employees enrolled in 401(k) plans who leverage independent financial advice offered through these plans save more than participants who don’t.

This was one of several key findings from a survey that Schwab Corporate Services released in April. The report, Schwab Retirement Advice Indicators, concluded that 401(k) participants enrolled in Schwab’s advice with managed account services save more than 10% of their eligible income in their 401(k) plan. That’s nearly 50% more than the national average (7%) cited in “Defined Contribution Market Insights 2003,” a report of the National Defined Contribution Council.

“Participants are reacting positively to advice that is personalized, objective and independent–and that has no additional fee attached,” says Jim McCool, president of Schwab Corporate Services, San Francisco, Calif. “This [service] is still relatively new in the industry but one we think will gain significant traction among plan sponsors in the coming years.”

The increased savings noted in the report compare favorably not only with the national average but also with the rates recorded among the same participants when Schwab launched the service in 2004. The average savings rate for advice users was 10.3%, up from 9.6% at the end of 2004. The rate was also 3.15% more than the average for all Schwab 401(k) participants.

Some 2,800 advice participants are enrolled in approximately 300 401(k) retirements plans offered through Schwab Retirement Plan Services. The advice users represent about 3% of all 401(k) participants for whom the service is available. Nationwide, Schwab services nearly 500,000 401(k) participants.

Schwab Retirement Plan Services avails 401(k) plan participants of independent advice and managed account services through GuidedChoice Asset Management. The company is not affiliated with SRPS.

McCool observes that older boomers, as expected, are among the highest advice users. Individuals from age 46 to 55 represent 27% of the total. Yet 401(k) plan participants in two younger categories–those in the 26 to 35 and 36 to 45 age brackets–each edged out these boomers at 28%.

How to account for the higher figure? McCool suggests that younger participants, particularly the “echo boomers” or “millennials” (those born between 1980 and 2000), have had the benefit of learning from their parents’ experiences in planning for retirement. The younger generation is also more forthright about discussing financial issues with their parents than the boomers were with their elders.

“When I was growing up, these things were taboo,” says McCool. “Now, it’s a very healthy conversation to have at the dinner table. And many boomer parents are saying, ‘don’t make the mistake that I made when I was growing up.’”

Millennials, he adds, are more financially literate than boomer parents were during their youth. As a result, a high percentage of those now entering the workforce expect to leverage a 401(k) in planning for retirement.

For participants between 26 and 65, more than half of individuals adopting Schwab’s advice service are age 45 or younger, the survey notes. The lowest adoption rates are recorded among the oldest and youngest plan participants: those over 56 and under 25.

A majority of advice users–56%–earn less than $60,000 annually. Individuals making from $40,000 to $59,999 account for the largest share at 27%. Those with salaries ranging from $20,000 to $39,999, $60,000 to $79,999 and $80,000 to $99,999 constitute the next three largest groups of advice users at 23%, 17% and 8%, respectively.

Plan participants with an account balance of less than $25,000 represent 43% of advice users, by far the greatest percentage. The next three largest account balance ranges– $25,000 to $49,999, $50,000 to $74,999 and $75,000 to $99,999–nab 17%, 11% and 6% of the total, respectively.

A similarly wide margin separates women from men. Fifty-four percent of advice users are women, as compared with 39% for men. Trish Cox, a chief operating officer for Schwab Retirement Plan Services, surmises that women are less “afraid to ask for direction” as regards retirement planning.

But McCool notes that Schwab needs to investigate the difference further. “We’re going to continue digging on this question,” he says.

‘Participants are reacting positively to advice that is personalized, objective and independent–and that has no additional fee attached’


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