How Plan Participants Use Advisors


Investors who have a defined contribution plan are already giving thought to their retirement. In that regard, they are forward thinkers.

Some plan participants go beyond their defined contribution program to place other investable assets into growth products, both for current financial needs and for eventual financial needs. Those investors often use professional advisors to assist them in making decisions that go beyond their DC plan.

“Not every DC plan participant sets out beyond their plan for investment options, but many do,’’ said Spectrem president George H. Walper Jr. “Our research details how many plan participants use outside advisors and how to best identify those that use outside advisors extensively.”

Spectrem’s DC Participant Insight Series report Advisor Relationships and Changing Advice Requirements shows that 73 percent of DC participants use an outside advisor. Of those that do, a surprising 30 percent use a mutual fund company representative as their primary advisor, and that includes 77 percent of those over the age of 65.

 Also, 21 percent of plan participants use an Independent Financial Planner and 14 percent use an Investment Manager as their primary advisor.  

However, among DC plan participants under the age of 36 who use an outside advisor, 31 percent use a Discount Broker and 27 percent use a Full Service Broker. As they get older, they are likely to look for more personalized and specialized advisory services.

Plan participants do not use outside advisors for a majority of their investment assets. The Spectrem study shows that on average they set aside 20 percent of their investable assets to the complete control of an outside advisor, and 32 percent which they consult a professional advisor about before making their own investment decisions. The remaining 48 percent, on average, participants control and invest themselves.

Again, those percentages are highest among older investors. Investors between the ages of 50-64 on average turn over 29 percent of their assets to the complete control of their advisor. There is also a wide difference in the usage of men and women, as female plan participants turn over 28 percent of their assets to an advisor to just 9 percent among male investors.

These are details that can color the relationship between an advisor and a new client who happens to be a DC plan participant. The Spectrem study also shows the difference in advisor usage based on the balance an investor has in their DC plan; In general, investors with more than $100,000 in their DC plan are more reluctant to turn over a large percentage of their assets to an advisor.

The 50-64 age group should be of particular interest to advisors, because that is the age in which investors still maintain a DC plan prior to rolling it over upon retirement or leaving their place of employment for some reason. Among the 50-64 age group, 49 percent indicate they are Advisor-Dependent, meaning they allow their advisor to make most if not all investment decisions without input from the client. Obviously, as DC plan participants age, they become more interested in advisor services, and advisors working with younger investors should note when their clients approach the later stages of their employment status.

(It is interesting to note that 33 percent of DC plan participants consider themselves Self-Directed investors, those who have an advisor but never really use that person for investment decisions. That age group seems to be an either-or proposition for advisors.)

And what of those plan participants who do not use an advisor? They do not claim poor, as many investors do when they are asked why they don’t avail themselves of the services of an advisor. Of the 24 percent of plan participants who do not use an advisor, 62 percent say they can invest their money more effectively than a professional, and 66 percent say they don’t believe an advisor would have their best interests in the forefront of their investment efforts.

DC plan participants who use an advisor are a unique segment of the investor population, and advisors would be wise to understand their motivations in using an advisor outside of their plan. Many such investors are looking to augment their DC plan investment strategy rather than outperform it. Advisors must always consider their client’s plan investments as part of their overall investment structure.


©2017 Spectrem Group