Cover:Warm Feelings: From High-Tech to High-Touch

Convinced that online advice is the future, advice providers now are scrambling to develop services that emphasize human interaction—yet remain affordable

Investment advice delivery for retirement plan participants seemed headed directly into the ether-world of high-tech online services for the past several years, but not anymore. Today, investment advice is quickly going high-touch.

Stung by evidence that online advice appeals only to a relatively small cross-section of participants, vendors are throwing their energies into developing new delivery channels that can reach a broader audience. They are not giving up on online advice. In fact, they continue to refine their Web-based services to make them more comprehensive and easier to use. However, they no longer believe that online advice alone is enough for most plan participants.

A few short years ago, it was accepted wisdom that a high-touch, high-cost service had little future in the retirement plan market. Sponsors balked at the idea of funding what seemed like an expensive way to help workers manage their retirement accounts prudently, and workers themselves showed little willingness to foot the bill. When the Internet became popular in the mid-1990s, it seemed neither group would have to worry anymore; suddenly, plan participants could receive investment advice inexpensively generated by sophisticated computer models online.

What proponents could not predict was that, while many plan participants were telling pollsters they wanted an online service, far fewer would actually give it a whirl once it was available. In early 2000, Merrill Lynch reported that, in surveys and focus groups it had conducted, 75% of employees who participated in 401(k) plans not only wanted but also expected their employer to provide advice services. Of that group, 84% wanted some sort of online service. In November 2002, by contrast, a survey conducted for American Express Retirement Services yielded the finding that more than half of respondents wanted some type of in-person consultation while only 14% preferred advice over the Web.

In practice, Financial Engines, one of the leading independent advice providers, has found that only 15% of participants offered online advice at companies with more than 1,000 employees try it within the first year of availability. Usage figures climb to 30% after the service has been in place for two years and 44% after three years, but those numbers are still well short of what plan participants were telling pollsters three years ago.