While the use of employer-sponsored programs for investment advice has increased over the past decade, a new report reveals that there are wide generational differences in the usage rates.
According to Hearts & Wallets’ “Advice & Technology: Opportunities for Hybrid Models, Workplace Resources and Differentiation Among Financial Professionals,” the use of employer-sponsored programs for investment information and advice has increased to 49% of households, up from 39% in 2010.
However, employer-sponsored programs are rarely the “primary source” among households. Employer-sponsored programs, including 401(k) or 403(b) providers and associated representatives, are more likely to be a “usual” source than they were in the past. In this case, the report shows that 17% of all households rely on employer-sponsored programs “usually,” while 26% say “sometimes” and only 5% say they are their “go-to/primary” source. On a positive note, the “usually” response has increased from 8% in 2012.
When looking at the findings by generation, however, the report shows that 2 of 3 Gen X and Millennials households rely on employer-sponsored programs to at least some degree, with a jump in the past year. Gen X use of employer resources (65%) has increased steadily since 2011, while Millennials (61%) are down slightly from a peak of 66% in 2019, but up from 56% in 2020. Meanwhile, only 1 in 3 Baby Boomer households use employers as a source of investing information and advice.
Not surprisingly, active participants in employer-sponsored retirement plans are more engaged with employer-provided information and advice than non-participants. According to the findings, about 6 in 10 participants say they either “sometimes” or “usually” rely on employer-sponsored programs for investment advice. However, only about 1 in 10 active participants (8%) use employers as the “go-to/primary” source—and this holds true across various demographic segmentations (generation, assets or income), the report notes.
The report further observes that discomfort with leaving money in plans sponsored by former employers may be holding consumers back from using employer resources. Although only 9% of consumers who strongly agree they are “comfortable leaving money in a retirement plan sponsored by a company where I no longer work,” 71% of them use employer resources (31% sometimes, 31% usually and 9% go-to/primary source). Meanwhile, consumers who are “very uncomfortable” leaving money in former plans are much less likely to use employer resources, with 73% saying they “never” use employer resources. “If employers and plan providers put more emphasis on explaining that consumers can roll their money into new plans or IRAs when they change jobs, perhaps engagement with employer resources would increase,” the report observes.
And in what may be of no surprise, Millennial use of employer resources increases with wealth. Hearts & Wallets found that nearly all Millennial millionaires (92%) use employer resources with about 1 in 10 (13%) relying on the workplace as their go-to/primary source of investing information and advice.
Gen X’s use of employer resources also increases with wealth, but less so than Millennials. Here, the findings show that Gen Xers with $1 million or more are much less likely (2%) than Millennials to use an employer as their go-to/primary source. Baby Boomers were more likely to use employer resources as a “sometimes” source. This could also be due to the finding that half of Boomer households of all asset groups are retired and are not as engaged with employers.
Hearts & Wallets’ report further reveals that an increasing number of consumers rely on multiple sources of investing information and advice. In fact, 43% of households use seven or more sources to at least some degree, compared to 14% of households in 2010. In 2020, the percentage of households using seven or more sources dipped, dropping from 45% in 2019 to 36% in 2020, when consumers retrenched during COVID.
Millennials with $100,000–$1 million (84%) and $1 million-plus (90%) are the generation-wealth groups most likely to rely on a high number (seven or more) of sources at least to some degree (go-to/primary, usually or sometimes). Affluent Gen Xers behave similarly, but to a lesser degree, while Baby Boomers are much less likely to rely on a high number of sources to some degree, the report notes.
“Customers and prospects are interacting with more sources than ever to make investing decisions,” notes Laura Varas, CEO and founder of Hearts & Wallets. “To craft service models and distribution strategy, firms should understand investor behaviors at the national level, but more importantly for their specific design targets,” she suggests.
The report is based on a survey of 5,794 U.S. households from the Hearts & Wallets Investor Quantitative Database with over 120 million data points on saving, investing and advice from over 70,000 U.S. households dating from 2010.