Client Service May 1, 2017

Analysis Shows Demand for Advice Increases with Age, Account Balance

The analysis from TIAA's proprietary business reveals significant demand for advice through the online tools; however, it also reveals a significant jump in demand for in-person advice between 2011 and 2012.
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Data from TIAA’s proprietary retirement plan business shows 4.89% (7,795) of the 159,522 participants sought advice about asset allocation at least once in 2014; 5.01% (7,994) sought advice about retirement income streams at least once in 2014.

According to the TIAA Institute’s report, “New Evidence on the Demand for Advice within Retirement Plans,” demand for advice (outside of wealth management) was much higher between 2012 and 2014 than it was between 2009 and 2011. TIAA says this structural break partly reflects the introduction of online tools, which are less costly for participants to access (and less costly for TIAA to provide) than in-person advice.

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Now that the online tools are available, approximately 10% of plan participants are receiving some form of advice from TIAA each year. While this may or may not be the optimal level of advice, it is a four-fold increase relative to the earlier period. In addition, the fact that 9.71% (15,484) of the 159,522 participants sought at least one type of advice in 2014 implies there is relatively low overlap between those seeking advice about asset allocation (7,795) and those seeking advice about retirement income streams (7,994).

TIAA distinguished between contributors and non-contributors, and found significantly higher demand for advice from the sample of active contributors, especially with respect to advice about asset allocation.

NEXT: Demand for advice increases with age and account balance

The analysis also shows demand for advice increases sharply with age. The increase is largest for TIAA’s retirement Income Planner (IP) tool, which uses a participant’s existing retirement account balances and target retirement age to forecast the equivalent level of annuity income available throughout retirement. This tool is used by 13.21% of contributors age 60 and older versus 3.80% for those ages 20 to 29. The increase is also significant for the Human Capital (HC) modelling tool, which provides advice about how to allocate retirement holdings across investments, how much life insurance to hold, and how much to contribute to retirement plans (10.21% versus 6.62%).

Demand for the HC and IP tools increases significantly with account balance, as well. For example, demand for the HC tool in the top decile is approximately three-times higher than in the bottom five deciles (14.63% versus 5.68% for contributors and 6.21% versus 1.61% for non-contributors).

The analysis reveals significant demand for advice through the online tools. However, it also reveals a significant jump in demand for in-person advice between 2011 and 2012.

The data analyzed in the paper come from TIAA administrative records. The sample consists of participants covered by retirement plans sponsored by 23 institutional clients for which TIAA is the sole recordkeeper. TIAA observed data on both plans and participants between January 2009 and December 2014.

The most common plan type is a 403(b), which accounts for 50.4% of its plan-year observations. Every institution offers at least one 403(b) retirement plan, and the median institution offers two plans—a primary plan in which all covered workers participate and a supplemental plan that covered workers may choose to participate in voluntarily. The next most common plan types are non-qualified deferred compensation plans (e.g., 457(b) and 457(f)), followed by 401(a) plans, a small number of 401(k) plans, and one retirement health care savings plan.

In Practice May 1, 2017

Product Restrictions, Platform Limitations, Drive Adviser Attrition

New Cerulli Associates research identifies “pain points” at the root of advisers’ decisions to change firms—and what leadership can do to address staff concerns before losing key advisers. 
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The May 2017 issue of The Cerulli Edge – U.S. Edition, offers advisers a checklist of common hurdles that commonly lead to staff discontent and attrition, finding there are many ways firms could do more to ensure their advisers stay committed.

According to the analysis, “adviser teaming, affiliation flexibility, culture, technology, operations and compliance, and the proposed Department of Labor conflict of interest rules are all emerging factors impacting recruitment and retention for broker/dealers and registered investment adviser (RIA) custodians.”

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It might seem like a fairly simple and innocuous list on first blush—but retirement industry practitioners will know that each of these items represents its own microcosm of challenges and opportunities. If an adviser or team of advisers has a problem with the way the firm is approaching any of these areas, it can quickly disrupt even the most well-established relationships. 

“Pain points are often at the root of an adviser’s decision to change firms,” says Kenton Shirk, director at Cerulli. “The choice may be triggered by factors such as restrictions on product use, client fees imposed for small accounts, changing compensation, unreliable technology, or minimum account size mandates.”

Shirk says these factors “will shape the growth—or decline—of channels and underlying firms in the marketplace.” Again it is important to stress the impact will not just be client-facing; the evolution of the advisory industry is also changing the internal organization and behavior of advisory firms and their service provider partners.  

“Because recruiting a large multi-adviser team is more complex and time-consuming, large broker/dealers are promoting teaming as a retention strategy and adjusting compensation to favor teams,” Shirk observes. “Cerulli finds that numerous independent broker/dealers have introduced their own RIA platforms in response to the attrition of large advisers to the RIA channel. Having their own platforms allows advisers to leverage them while an adviser holds a separate and independent RIA.”

NEXT: Independent B/Ds and IRAs work in concert 

The Cerulli Associates analysis presents evidence that multi-channel broker/dealers are positioning their RIA platforms “as a new way to attract advisers and serve them throughout their lifecycle regardless of regulatory structure.”

Another clear trend is that “culture is becoming a critical differentiator.” Advisory firm leaders may assume it is compensation or some other monetary-based factor that most sets firms apart, but from the perspective of advisers on the ground it is often more esoteric considerations that really determine happiness. 

“Of advisers in employee channels who switched firms in the past three years, 51% indicate that the quality of their broker/dealer’s culture was a major factor influencing their decision,” Shirk warns. “Similarly, technology is becoming an increasingly important factor when advisers choose a new firm. Advisers are beginning to recognize its large impact on productivity and client experience.”

Cerulli finds that among wirehouse advisers who would prefer joining the independent model if they leave their current firm, nearly half indicate that assuming additional compliance (48%) and operational (47%) responsibilities are major concerns.

“RIA aggregators and platforms use concerns about operations and compliance to win breakaway advisers in wirehouses who want to go independent but desire a turnkey infrastructure,” the Cerulli research concludes.

Information on obtaining Cerulli Associates research is available here. 

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