For nearly a decade, Schwab Retirement Plan Services, Inc., has kept its finger on the pulse of participant thinking through its annual 401(k) Participant Survey. In the just-released 2018 edition of the survey, Schwab looked closely at how participants use and value retirement planning advice. PLANSPONSOR spoke with Nathan Voris, managing director of business strategy at Schwab Retirement Plan Services, to find out what the firm learned—and what it all means for plan sponsors.
PLANSPONSOR: The retirement industry has expended tremendous energy developing advice platforms for retirement plan participants, and clearly believes in the value of advice. What about participants?
VORIS: Many tell us they want help. In our latest survey, more than 50 percent of participants said their financial situation warrants advice, and 52 percent said they would expect it to drive better investment performance.1 That’s encouraging, but we’re still concerned about the 47 percent who believe their situation does not warrant advice1—even when they have access to a broad array of no-cost or low-cost planning solutions designed to accommodate virtually any situation. The challenge for service providers and plan sponsors is to get that 47 percent to believe their situation is important enough to take advantage of advice.1
PS: What would you tell participants about why they should do that?
VORIS: We know advice works. We have documented that when participants use third-party advice services, their savings rates go up, portfolio optimization improves, retirement readiness scores go up, and they become more confident about their retirement outlook.2
PS: What kind of help are participants most interested in receiving?
VORIS: Much of it leans toward financial planning: calculating how much they’ll need to retire, figuring out when they can retire, getting investment advice on their 401(k) portfolios. Some of the newer issues they’re interested in as financial wellness programs take root revolve around more basic things like creating a budget, establishing an emergency savings account, or figuring out what to do with their student loan debt.
PS: Do participants have a clear preference on how they want to receive advice?
VORIS: It’s pretty evenly split between online and in-person help, which is why our approach is to plan for everything. You need great solutions that are fully digital, fully phone, and fully in-person, and then lots of steps in between. I think a lot of participants end up taking an advice journey. They may start fully digital, then ask some questions by phone, and then finally, at some point in their life, really value sitting down with a human. That last step is so critical. Having some sort of accountability partner who can reinforce the importance of your plan is really valuable, and we believe it still has to be the centerpiece of advice and financial wellness offerings.
PS: What about the cost of advice? How concerned are participants about that?
VORIS: Participants know when a service is worth paying for and when it is not. Transparency helps. We offer access to personalized advice and a managed account service that may help them reach their destination. When it is done well, I think everybody is on the same page.
PS: What sort of uptake do you see on fee-based advice?
VORIS: It can be very high. Advice helps give participants clear answers based on their current financial picture that they can decide to implement then and there or just continue on their own. They can add a managed account service, which gives participants the opportunity to choose, for a fee, the benefit of ongoing professional management of their retirement plan account by a third-party advice provider. More than seventy percent of participants who go through that exercise choose managed accounts.3
PS: What’s the key takeaway here for plan sponsors?
VORIS: Sponsors need to be promoting advice. It’s one thing to make something available and quite another to encourage participants to take advantage of it. When our plan sponsor clients do that, we see very strong uptake by participants.
For more information, visit schwab.com/mas
1 Source: Schwab Retirement Plan Services, Inc. 401(k) Participant Survey, 2018.
2 Source: David Blanchett, 2014. “The Impact of Expert Guidance on Participant Savings and Investment Behaviors,” Working Paper (August).
3 Source: Schwab Plan data from January 1 to December 1, 2017.