CHICAGO Close to half of defined contribution plan participants still turn to friends and family for advice about their retirement plan assets, according to a new survey.
The survey, by Spectrem Group, a Chicago-based research and consulting firm, showed that plan participants are interested in advice, but don't want to pay for it.
A total of 421 plan participants were surveyed online during October and December, and the results were released this month.
The survey showed that 44% of participants asked friends and family for advice on investing their retirement plan assets, while 25% chose providers and 24% sought out advisers.
The survey also showed that participants were willing to accept advice from advisers, especially if they were not charged a fee, according to Gerald M. O'Connor, a director at Spectrem. Even when the advice was free, however, only 23% of participants consulted an adviser.
The Pension Protection Act of 2006 permits participants to consult a professional financial adviser through their employer, and this service was available to 42% of participants surveyed.
The new investment advice model appears to be something that will have greater success than the previous investment guidance, Mr. O'Connor said. People do like dealing with a person.
All of the participants who met with a financial adviser through their employer were satisfied with the advice they received, the survey showed. Fully 48% were very satisfied and 52% were somewhat satisfied.
The major issue for most is whether the plans or participants pay for the cost of the advice, Mr. O'Connor said. While a majority of participants (70%) are open to receiving free advice, only 31% would be willing to pay for it.
This is something that plan sponsors are split on, Mr. O'Connor said. Some make the service available, and some absorb the cost while others don't.
The better paid an employee, the more likely he will meet with an adviser. Employees with income of less than $50,000 were significantly less likely to use an adviser's service compared with those who earned $50,000 to $99,999.
Participants need advice, although they don't always recognize that they do, said Linda Kerschner, a senior vice president and financial adviser with Captrust Financial Advisors, an independent advisory firm based in Raleigh, N.C., which oversees $22 billion in assets. Ms. Kerschner is based in Charlotte, N.C.
Advice is the single most needed service in the market today, she said. People need someone they can call.
Her firm provides such advice, and participants want significantly more than just education about their retirement accounts, she said. They'll always ask you when they have contact with you, what they should do, Ms. Kerschner said.
For the last five years, Merrill Lynch & Co. Inc. has offered its Merrill Lynch Advice Access to participants, said Stephen Mitchell, director in the Pennington, N.J.-based retirement group at the New York firm.
This program allows participants to get advice based on their age, current retirement savings and expected retirement date without speaking to advisers.
Merrill's retirement division had $439 billion in assets under management as of Dec. 31, 2007.
The use of this service has grown dramatically, Mr. Mitchell said. The costs of the advice are included in record-keeping costs. The program also allows participants to adopt the personal manager program similar to a managed account.
We're putting new clients in it, and we're seeing a number of clients adopting the personal manager as their qualified default investment alternative.
Advice may be particularly important since participants generally ignore educational materials.
Although 56% of plan providers offer educational materials and meetings, only 12% of participants refer to them on a regular basis, the Spectrem survey found.InvestmentNews