Analysis Shows Demand for Advice Increases with Age, Account Balance

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.

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.

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.