BOSTON — Individuals with a high percentage of investment assets in employer-sponsored retirement plans or in personal accounts are more likely to gravitate toward solution-oriented products and services instead of being tied to investment behaviors of the past, according to a new study.
Researchers at Financial Research Corp., Boston, found that 20% of investors with more than 90% of their total investible assets in employer-sponsored plan accounts were in a lifecycle fund. That compares with 9% of investors who have less than 30% of total investible assets in an employer-sponsored plan.
“When more is at stake, the less investors want to go it alone,” said Kristin Adamonis, a senior editor at FRC and the study’s author. FRC commissioned Synovate’s financial service practice to conduct the survey of 669 investors, who were all over the age of 30 and had varying levels of invested wealth.
Of respondents with less than 30% of total investible assets in individual retirement accounts, 46% used financial advisers. That rose to 55% for investors with more than 60% of total assets in IRAs. Among investors using taxable investment accounts, 38% of those with less than 30% of total investible assets in the accounts used advisers. That rose to 80% for investors with more than 60% of total investible assets in taxable investment accounts.
Despite that trend, most people enrolled in an employer-sponsored plan said they still selected their investments on their own. Of employees between 30 and 40 years of age, 63% said they choose their own investments, while 21% said they use lifecycle funds and only 8% said they use professional advice. Of employees between the ages of 41 and 60 years of age, 53% said they choose their own investments, while 22% said they use professional assistance and only 8% said they use lifecycle funds.
FRC undertook the study to find what investors thought of the solution-oriented products and services that have flooded the financial marketplace in the last decade.
“These were quite unusual 10 years ago,” said David Wray, president of the Profit Sharing/401(k) Council of America, Chicago. “But there’s been a wide, rapid adoption in 401(k) plans.”
Mr. Wray estimated that about half of all current 401(k) plans now offer lifestyle or target-date plans. Other solution-oriented investments include 529 college savings programs, health savings accounts and lifetime annuities.
“People are wanting a managed solution plan, instead of mixing their own portfolios,” he said.
A large number of those wanting help are younger workers who are worried about their financial future because of concerns over Social Security and dwindling pension plans, Ms. Adamonis said.
“The 30 to 40 age group really doesn’t know what the future holds,” she said. “They’re apprehensive, distrustful.”
The survey found that younger workers tended to be motivated to seek information about solution-based investment products because of fear or anxiety about their financial future, while investors aged 70 and older were more motivated by a sense of opportunity.
Mr. Wray said it makes sense that the older investors would be looking at these products because of lengthening life spans.
“I think people are recognizing that if they’re a healthy 70-year-old, they might live another 20 or 30 years,” he said, adding that those investors want to have a reasonable exposure to all asset classes so they can stay ahead of inflation.
The study also found that more investors believed model portfolios created by manager research teams would result in an optimal portfolio, instead of financial advisers choosing from all available options. That’s encouraging news to financial firms, but they need to identify their most promising markets and target them instead of trying to have a broad appeal, according to the study’s findings.
“Gone are the days when broad-based products and services and vague marketing message will win assets,” FRC President Michael Evans said in a release. “Those firms that identify their most promising target markets and design their product and service solutions to appeal to those groups will emerge with a competitive advantage.”
“No firm is going to appeal to all investors,” Ms. Adomonis added. “They need to make a decision of who they want to target and develop products for that audience.”
