Producers aiming to deliver their services through 401(k) plan sponsors might consider adding this fact to their marketing pitch: Employees enrolled in 401(k) plans who leverage independent financial advice offered through these plans save more than participants who don't.
This was one of several key findings from a survey that Schwab Corporate Services released in April. The report, Schwab Retirement Advice Indicators, concluded that 401(k) participants enrolled in Schwab's advice with managed account services save more than 10% of their eligible income in their 401(k) plan. That's nearly 50% more than the national average (7%) cited in "Defined Contribution Market Insights 2003," a report of the National Defined Contribution Council.
"Participants are reacting positively to advice that is personalized, objective and independent–and that has no additional fee attached," says Jim McCool, president of Schwab Corporate Services, San Francisco, Calif. "This [service] is still relatively new in the industry but one we think will gain significant traction among plan sponsors in the coming years."
The increased savings noted in the report compare favorably not only with the national average but also with the rates recorded among the same participants when Schwab launched the service in 2004. The average savings rate for advice users was 10.3%, up from 9.6% at the end of 2004. The rate was also 3.15% more than the average for all Schwab 401(k) participants.
Some 2,800 advice participants are enrolled in approximately 300 401(k) retirements plans offered through Schwab Retirement Plan Services. The advice users represent about 3% of all 401(k) participants for whom the service is available. Nationwide, Schwab services nearly 500,000 401(k) participants.
Schwab Retirement Plan Services avails 401(k) plan participants of independent advice and managed account services through GuidedChoice Asset Management. The company is not affiliated with SRPS.
McCool observes that older boomers, as expected, are among the highest advice users. Individuals from age 46 to 55 represent 27% of the total. Yet 401(k) plan participants in two younger categories–those in the 26 to 35 and 36 to 45 age brackets–each edged out these boomers at 28%.
How to account for the higher figure? McCool suggests that younger participants, particularly the "echo boomers" or "millennials" (those born between 1980 and 2000), have had the benefit of learning from their parents' experiences in planning for retirement. The younger generation is also more forthright about discussing financial issues with their parents than the boomers were with their elders.
