Medium Matters in Advice Adoption

May 21, 2002 ( - Plan sponsors can have an impact on participant utilization of online advice, according to new data made available by Financial Engines.

But the online component is just that, according to Ken Fine, Vice President Product Marketing at Financial Engines. Personal statements remain an important aspect for many, if not most participants, while the ability to interact with a real person – either in live, or via a call center – can be another critical element.

“It’s critical to match workers with the right medium,” Fine remarked, also cautioning that that determination is not a one-shot determination. “People migrate to different groups over time.”

Echoing the experience of other online advice providers (see at Time, Money Impact Advice Utilization) time does appear to make a difference in the adoption rate, broadly defined as a participant’s registration for the service.

Financial Engines says that, on average, its client base has a 15% adoption rate of those eligible for the service after one year. However, that rate doubles after two years to 30.4% – and increases another 50%, to 44.4%, on average, after three years.

Yet while those growth rates are dramatic, the success of the program is often dependent on factors other than the online advice tools themselves. For instance, the first year adoption rate is nearly 25% for participants with Internet access, Jeff Maggioncalda, president and CEO of Financial Engines, told .

Coincidentally, as with the overall statistics, that rate doubles to 50.7% after two years, and grows by another 50% to 74.1% for Internet-connected participants after three years.

Taking Action

But for many plan sponsors, the question is, “does advice work?”  Participant surveys suggest it does – with 38% of participants surveyed claiming they increased their savings as a result of the advice tool – and with an average increase from 6% to 10%, according to Financial Engines.
However, in what may be a more telling set of statistics, Financial Engines database shows that users in the 18 to 34 age group increased their risk levels, while those in the 55 to 64 and the 65 and over categories reduced their risk levels.

In a recent “webinar”, Financial Engines cited a case study that compared the application of online advice to the portfolios of two different groups during the 1999 – 2001 time period.  Some 86% of advised portfolios outperformed the non-advised over the period, and by an average of 1.48%.

During the beginning of the slump in the 2000 – 2001 period, the difference was even more striking, with an average outperformance of 3.12%.  In fact, the study indicated that 90% of the advised portfolios fared better over the two-year period.

Other Influences

In addition to Internet access, Fine notes two other key factors that influence adoption/utilization rates:

  • utilization of the portal to the advice tool, whether from a provider’s Web site or a plan sponsor intranet, and
  • cooperation/support/participation of the plan sponsor in the communication process

Financial Engines notes that, in its experience, advice adoption averages 43% if the provider Web site is highly utilized by participants, compared with a 17% rate when those intermediary portals are less highly utilized.

However, while plan sponsors can’t always influence the availability of the Internet, or the utilization of a 401(k) Web site, they can have a direct impact on the third component – employer support. Fine says that an active launch and promotion campaign, including the use of incentives, or a deadline for use of the service can have a real impact – 25% adoption rate at the end of a year, compared with less than 10% for a more passive introduction.

Financial Engines also notes the following use statistics:

  • average session time is approximately 17 minutes, with over 85% of those who enter data staying on long enough to get a financial forecast
  • workers average two to three sessions during the first month, roughly five or six over the course of the first year
  • approximately 40% of participants enter investment data from outside the retirement plan, while 50% enter data on individual stock holdings

Participants most frequently come to the advice portal to check their balances, according to Fine.  Checking their forecast is also common, while the third most common activity has been to check for new advice. The latter is a newer trend, likely boosted by the introduction of the “advice light” – an email notification to the user when circumstances warrant a change in the approach.