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What 401k Investors Want in a Financial Advisor

Nov 3rd 2015
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In a recent study released by investment advisory firm Financial Engines, investors in retirement plans were found to want, among other things, both online and in-person advice from financial advisors.

The study, The Human Touch: The Role of Financial Advisors in a Changing Advice Landscape, which surveyed 1,000 full-time employees between the ages of 18 and 70 who participate in their employer's defined contribution plan, revealed the following five key findings.

1. About half (54 percent) of 401(k) investors who don't already work with an advisor want to but have concerns, such as cost, insufficient assets, and uncertainty of how an advisor helps. Most of them (63 percent) prefer a “do-it-for-me” approach, while 44 percent want to do their own investing but were still interested.

2. A big majority (87 percent) of investors said it's very or somewhat important to work with an advisor who is legally required to work in their best interest. That fiduciary obligation was very or somewhat important for 93 percent of investors with assets of $100,000 to $500,000; 91 percent of investors who already work with an advisor; 92 percent of those who use target-date funds; and 93 percent of those who currently don't work with an advisor but want to.

3. While interest in online advisory services was strong with 60 percent of investors, it was even stronger for services that included access to financial advisors (68 percent). Interest in online advice was strongest among investors 18 to 34 years old (80 percent) and people who don't currently work with an advisor but want to (84 percent).

4. Advisory service should focus on retirement issues, as well as healthcare expenses and debt management.

5. More than half (59 percent) of target-date fund investors who don't currently work with advisors want to.

The takeaways? Financial Engines researchers believe the results indicate that:

  • Technology can help remove barriers that keep investors from working with advisors.
  • The push for a fiduciary rule by the US Labor Department and the US Securities and Exchange Commission is well-founded.
  • Financial advice needs to focus on a variety of investor concerns.
  • Advisors could help target-date fund users who “suffer needlessly lower returns” because they don't currently use their funds as intended.

“While technology can broaden the access people have to investment advice, we've found that many people value the ability to talk with a professional advisor, whether just to ask questions or to develop their retirement plan,” Kelly O'Donnell, a Financial Engines executive vice president, said in a prepared statement. “Our survey shows that in addition to wanting more personal guidance, people feel very strongly about wanting an advisor who is on their side, placing their interests first.”

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