Younger investors in employer-sponsored retirement plans are shifting away from advisors, a new Spectrem Group study shows.
According to the study, more than 40% of participants in employee-sponsored retirement savings plans who are under age 35 say they are making their own investment decisions rather than using an advisor.
Similarly, one-third of participants age 35-49 indicate similar behavior.
The report, which based on a survey of 986 individuals who participate in an employer-sponsored retirement savings plan such as a 401(k), 403(b) or 457 plan, finds that overall slightly more than half (54%) of plan participants use an advisor.
This represents an opportunity for advisors and plan providers, Spectrem President George H. Walper Jr. says.
“Providers have a significant opportunity to retain and grow their business by strengthening their engagement with plan participants,” Walper said in a statement. “As the U.S. population ages, these opportunities for engagement will only increase, since more than 30% of plan participants say they will be seeking advice on planning for long-term care, implementing tax-advantaged strategies and establishing an estate plan.”
Of the plan participants who do use an advisor, Spectrem finds that eight in 10 would prefer to work with one advisor who handles all facets of their wealth.
The report also identifies what factors are important when considering an advisor.
According to the survey, 7 in 10 consider it important that their advisor has professional registrations and designations, such as being a certified financial planner or chartered financial analyst. Across age groups, the importance placed on an advisor’s certification increases with older plan participants.
Investors also want an advisor that understands their risk.
“Three-fourths are confident that their advisor understands their appetite for risk, which is especially relevant in the handling of retirement plan assets,” the report states.
Broken down by gender, women surveyed by Spectrem consider it more important than men that their advisor understands their appetite for risk (79% vs. 72%).
Interestingly, the report finds that only 45% of those who use an advisor say they rely on and trust their advisor for the vast majority of their financial needs.
This suggests that a significant portion of those who use an advisor are dissatisfied.
According to the survey, this dissatisfaction with advisors manifests in respondents’ attitudes about account statements and face-to-face meetings.
“Contrary to expectations, investors under 35 are disappointed with their advisors the most when it comes to these traditional means of communication,” according to Spectrem.
Failure to Communicate
Advisor communications leave investors unimpressed in other ways too. Asked to rate their communication, participants’ “excellent” ratings were low for newsletters (15%), blogs (2%) and social media (2%). Nearly half of respondents rated advisors’ blogs (46%) and social media activity (50%) as poor, according to the survey.
Of the top five reasons investors said they would fire an advisor, four were about communication and only one relates to performance.
Less than half (45%) rate their advisor on whether or not he or she regularly outperforms the market, according to the survey.
However, the survey finds that 84% of surveyed plan participants expect their advisor to respond promptly to their inquiries and questions. One-third of participants think their advisor should contact them regularly.
The good news, though, is that the percentage of participants indicating they are likely to drop or replace their advisor in the coming year has declined by 3 percentage points from the previous year to 9%, according to the survey.
—Related on ThinkAdvisor: