Each year, technology plays a bigger role in the defined contribution (DC) world, notes Kelly O’Donnell, executive vice president at Financial Engines. The Pension Protection Act (PPA) brought a wave of change in plan design and investments, automating plan features and investment vehicles, such as with auto-enrollment into target-date funds (TDFs). Then, too, firms increasingly have been turning to robo-advice and automated asset-allocation models, innovations that have made retirement planning easier for 401(k) participants, according to a survey by Financial Engines, a registered independent adviser (RIA).
In “The Human Touch: The Role of Financial Advisors in a Changing Advice Landscape,” Financial Engines finds that participants still want something basic and even old-fashioned: a person in their corner.
The one constant Financial Engines saw throughout all the industry change was the desire for a relationship, O’Donnell notes. “When people make money decisions, it’s [simultaneously] emotional and rational,” she points out, spending money now versus delaying in order to potentially have more later. “So financial advisers continue to be constant in helping people make good decisions. And we see that TDF users, who you think of as comfortable with set-it-and-forget-it advice or management, are people who really want to talk with an adviser.” Financial Engines found 59% of participants not working with adviser would like to work with one. O’Donnell says this means that solid investment advice and asset allocation still leave people wanting a personal relationship to help validate critical financial decisions.
One task the industry will face is finding a way to balance people’s desire for this human relationship with its own need to scale.
Combining automated portfolio construction that is personalized for individuals with a remotely accessed real-life adviser is a model that works well, says William Trout, a senior analyst with research and consulting firm Celent. It speaks to the needs of today’s tech-savvy investors: “Think Gen Xers and [Baby] Boomers raised on online brokerage and, separately, the Millennials,” Trout tells PLANADVISER, “who still find comfort and value in the advice or answers to questions delivered by a real-life person.”NEXT: Is there a model that works for participants and is still scalable?
The “blended” model represents a good middle ground for now, according to Trout, particularly in the retirement planning sphere. It will meet people’s needs, as well as their desire for an actual connection to validate their decisions. In the DC world, he says, “the number of variables and possible inputs necessary to answer the ‘What will I need?’ question makes the involvement of a human helpful.” But in the longer term, the companies that offer these blended models might need to find ways to automate more than portfolio construction, Trout adds.
Technology is going to be a big part of what makes scaling advice more possible, O’Donnell says. “Being able to get advisers up to speed very quickly on an individual’s needs is key,” she says. “In addition to the technology, advisers will look at the ways to scale based on where you’re distributed. We’re using our investment methodology and advisers are helping implement this, which gives them more time to spend on the relationship and the service.”
According to Mike Jurs, director of Financial Engines, the advisory is making its advisers available to all participants with access to Financial Engines, not just those with professionally managed accounts, even those who have never used online advice.
Financial Engines also found participants are most interested in topics well beyond the scope of traditional retirement planning, such as determining the appropriate savings rate to reach retirement goals; turning 401(k) and retirement accounts into reliable income in retirement; evaluating overall financial wellness; and assessing individual risk tolerance.NEXT: What won’t automation do?
Companies will find ways to automate more complex decisionmaking around things like asset drawdown post-retirement and even wealth transfer, Trout believes, dovetailing participants’ interests and the industry’s need to scale, which will be driven by automation. The “advice value plan” will need to expand, and “a human being can still filter or tweak the advice.” But to meet the behavioral needs of Millennials and other investors, automation will be key.
“As an industry, we have to improve,” O’Donnell says. Some use the workplace to make access more cost-effective, but it’s just a starting point. “It’s the people with lower balances that likely need the best advice,” she cautions. “They have to make the most of what they have, and getting more access for the average investor, to higher-quality advisers, is something we have to look at.”
The barriers people face in getting access to an adviser both sadden and surprise O’Donnell, she says. “People believe they don’t have enough money for an adviser to pay attention to them,” she says. “The [actual] cost of an adviser worries them, and they don’t know how an adviser works.” It’s critical for participants to get much more information and education about how to work with an adviser.
O’Donnell admits the concerns are valid, as objective high-quality advice often requires a minimum balance. Automated solutions are available but often don’t offer the services of an adviser, she says: “Looking how to scale that human touch will be the next chapter.”
“What’s really interesting is that with all of the changes, this desire to talk with a real-life person who can validate your strategy really remains strong among all people,” Jurs says. “It’s about the relationships you have,” Jurs tells PLANADVISER. “That kitchen table is still key when you’re making important financial decisions.”
“The Human Touch: The Role of Financial Advisors in a Changing Advice Landscape” can be accessed from Financial Engines’ website.