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Introduction of Online Tools Produces Four-Fold Increase in Demand for Advice

Demand for advice on asset allocations and income planning increased four-fold among study participants after online advice tools were introduced, according to a new research paper.

Using participant-level data from 23 institutions served by TIAA between 2009 and 2014, the study – “New Evidence on the Demand for Advice within Retirement Plans” – examines how demand varies based on participant demographics, as well as how it is affected by default investment options and the means by which advice is offered.

Authors Jonathan Reuter of Boston College and NBER (and a TIAA Institute Fellow) and David Richardson of the TIAA Institute found that advice seeking by participants jumped from 2.4% during the period 2009-2011 to 10.25% from 2012-2014, following the launch of online advice tools in late 2011.

The authors suggest that that “simplest interpretation” is that online tools significantly lower the relative price of advice because many participants find it more convenient to use online tools than to schedule in-person meetings with advisors. They further observe that there may also be “psychological factors,” such as greater anonymity, that lead to an overall increase in demand.

Not surprisingly, demand for advice is significantly higher among contributors with web access. The report notes that participants with web access to their account are approximately twice as likely to seek advice as those without it. The authors suggest that, because they continue to see an economically significant association between web access and advice seeking throughout their research, one potential low cost “intervention” is to provide web access to all participants by default.

Meanwhile, participants who invest through multiple retirement plans demonstrated higher levels of advice seeking than participants who invest through a single plan. But participants who invest solely through target-date funds are “significantly less likely” to seek any form of advice, even when they are approaching retirement age, according to the study. While TDFs provide an auto-diversified long-term investment option, reliance on TDFs appears to reduce retirement plan engagement, which may result in the participant receiving less advice, the authors noted.

The study further revealed only limited evidence that investment advice increases around investment menu changes. Participants were more likely to seek advice on asset allocation and retirement income levels when the investment menu in the institution’s primary plan is larger. However, while plans with larger investment menus had higher average levels of demand for advice on asset allocation between 2012 and 2014, demand did not rise or fall within institutions as the number of investment options changed, the report explained.

Other findings include that advice seeking increases around changes in marital status, while older participants and those with larger account balances are more likely than others to seek out advice, particularly among those eligible for wealth management services.

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