A report released Tuesday by Financial Engines found 87% of 401(k) investors think it’s at least somewhat important that a financial advisor be legally required to act in investors’ best interests.
However, Kelly O’Donnell, executive vice president of business operations and corporate marketing for Financial Engines, believes the concept of a fiduciary and what that means for their clients might be lost on investors.
Fewer than 70% of respondents said having an advisor who was legally required to act in the investor’s interest was “very important.”
“Many people believe that everyone is required to put their best interest first and that it’s the minimum standard when in fact it’s not,” O’Donnell told ThinkAdvisor on Tuesday. “As an industry, we need to do more education, more background and context for what does it mean to be a fiduciary — probably not using the word fiduciary — but [helping investors understand] the right questions to ask your advisor in terms of how they’re being paid, whether they receive commissions and make it more friendly to the investor.”
A legal requirement to act in investors’ best interest is important “whether you’re technology-driven or a human-based advisor,” she said.
She added that she’s seeing a “convergence of what technology can offer and what human beings can offer.”
“Despite a lot of things that we’ve seen in the defined contribution space — innovation with plan design with the automatics and innovation in investment products, whether that’s the ability to provide advice online or target-date funds, retirement income products, managed accounts — that even through all those innovations, you’re seeing people wanting to talk to an advisor,” she said.
For example, among target-date fund investors, 76% said that an advisor’s fiduciary status was “very important,” and 59% who didn’t have an advisor wanted to use one in the future.
“Here’s someone comfortable using an automated investment program, but they’re still very interested in talking with a human,” according to O’Donnell. “I think people think that if you’re in a target-date fund, you’re ‘set it and forget it.’ What this survey is saying is no, people still want to talk with someone, even with automated programs.”
Although interest in online investment platforms is high at 60%, just 23% of respondents said they preferred a DIY approach to investing. Over half of investors who didn’t work with an advisor were interested in doing so.
Furthermore, of the respondents who were interested in online advisory services, 68% said they wanted services that included access to an advisor.