Do Participants Use Advisors?
Defined contribution plan participants clearly have the future in mind. But they are not as mindful when it comes to seeking assistance to prepare for the future.
The use of financial advisors among DC plan participants is surprisingly low. Our study Advisor Usage Among DC Plan Participants shows that only 54 percent of participants use an advisor. Even among participants who are approaching the age when retirement considerations come up (50-64), usage of an advisor is at the seemingly low 58 percent.
“Defined contribution plan participants are an unmined trove of investors who have assets which could benefit from the services of a financial advisor,’’ said Spectrem president George H. Walper Jr. “While the research shows that participants who use an advisor are likely to rely heavily on their expertise, the usage overall is considerably lower than might be expected.”
Breaking the participants into four groups based on their dependency on an advisor, a full 82 percent claim to be Self-Directed Investors who make all of their decisions without an advisor, or Event-Driven investors who use an advisor only in special cases such as making asset allocations or finding an alternative investment.
However, of those plan participants who use an advisor, 47 percent say they “rely and trust their advisor for the vast majority of their financial needs”. This indicates that the relationship can work and often does, if the advisor can establish the relationship initially.
And how does that happen? While 58 percent of plan participants who use an advisor found their professional thanks to a referral from a friend or family member, 7 percent say the relationship started from a cold call from the advisor. In fact, among specific reasons offered, the cold call was the second most likely response. That percentage grew to 21 percent among plan participants with at least $50,000 in their plan balance.
Once the relationship has been established, advisors can maintain their account with plan participants by being responsive to their calls. Eighty-four percent of plan participants say they expect their advisor to respond promptly to their inquiries and questions. Thirty-two percent want regular phone or electronic communication from their advisor, an indication that they value the relationship they have and want it to be an ongoing and active one.
Our report indicates that plan participants also have at least one more expectation from their advisor relationship. Sixty-two percent of plan participants prefer having one person to deal with from an advisor standpoint, and 35 percent prefer one key person plus additional members who are able to provide support. Only 3 percent accept the idea of a team approach to financial advice.
Obviously, plan participants often have more than their DC plans on their financial minds, and they appreciate the assistance of a financial professional in growing and protecting their assets. As such, plan participants are more than likely to recommend their advisor to someone they know. While 53 percent of all plan participants would refer their advisor, 67 percent of those over the age of 64 and 57 percent of female participants would make that recommendation.