The answer to that apparently is a resounding yes, as younger investors desire financial advice, but most are priced out of the option they demand most—having a holistic, ongoing relationship with a trusted financial advisor.
A new report from Cerulli Associates suggests, however, that retirement plan providers can fulfill this unmet need for financial advice among lower-balance, younger retirement investors by offering reasonably priced in-plan financial advice and planning solutions, potentially setting the stage for future financial advice relationships with them.
In fact, according to the latest Cerulli Edge—U.S. Retirement Edition, the desire to seek out a financial advisor does not vary significantly across generations. Nearly 7 in 10 (68%) Generation Z plan participants say they would seek out a financial advisor before making a change to their finances, as would 69% of Baby Boomers. Yet, 70% of plan participants with less than $100,000 in investable assets—often the Gen Z cohort—do not work with a financial advisor.
Yet, investors with 401(k)s who do not work with a financial advisor generally turn to their retirement plan provider for financial planning and advice. Cerulli found that of 401(k) participants who do not have an ongoing relationship with a financial advisor, 60% cite their 401(k)-account provider or “no source” as their primary source of retirement planning and financial advice.
Moreover, in the absence of a relationship with a financial professional, Gen Z participants are far more likely to say they would reach out to family members, friends or colleagues for guidance (71%), as compared to their older counterparts.
Filling the Gap
According to Cerulli, retirement plan providers may be best suited to fill this advice gap. To that end, the report suggests that lower-cost solutions, combined with effective communication and employee engagement campaigns, can address this gap while creating opportunities for providers to service assets across the lifetime of the participant.
In fact, while retirement plan providers typically have acted largely as institutional investors first and personal wealth management providers second (if at all), an increasing number of retirement providers are expanding their services to include advice to participants that meets the needs of both younger and older investors, the report further explains.
“The DC market is fee-sensitive, and younger, lower-balance participants are unlikely to see a net benefit from being automatically enrolled into an expensive in-plan advice solution,” stated Elizabeth Chiffer, analyst at Cerulli. “Retirement plan providers that seek to improve the financial well-being of their youngest investors, and potentially set the stage for future financial advice relationships with them, will need to build out cost-effective solutions to effectively address their financial challenges at scale.”
Still, most 401(k) investors take a passive approach to retirement planning—and even if investors were to have access to in-plan advice solutions, it would remain difficult to drive engagement, the report further observes. Consequently, Cerulli recommends that employers and retirement plan providers continue to pursue efforts to educate and, when called for, advise participants on their finances. “But as they are doing so, they also should consider the cost-benefit trade-offs for participants across the wealth spectrum,” the report further recommends.
Another issue that arises is that many employees who dial their recordkeeper’s call center falsely believe that the representative they’re speaking to can provide them with specific, actionable financial advice, the report further observes. It notes, however, that some firms have invested in building call center-based financial advice.
Plan sponsors can also seek out advice solutions through their plan’s advisor or consultant, Cerulli notes. For example, intellicents offers plan sponsors onsite financial planning for employees.
Meanwhile, some large plan sponsors are taking the initiative to give their employees access to financial advice. In conversations with Cerulli, the report notes, some large plan sponsors have shared their belief that the best option is to partner with their recordkeeper to provide access to certified financial planners (CFPs) at the workplace. “These sponsors tout the benefits of these meetings not only for older, higher-income participants, but also for younger participants to help prevent poor financial decision making.”
What’s more, while a younger, lower-balance participant might not necessarily require an ongoing relationship with a financial advisor, “a financial planning meeting with a CFP could be transformative in moving a struggling participant back onto the right track,” the report further emphasizes.
