Schwab Study Reveals Ways to Increase Participant Engagement

However, an analysis of actual participant behavior in Schwab-administered plans reveals less than 10% of people with access to advice actively use it. Noting that for the majority, their employer-sponsored 401(k) plan is their only source of retirement savings, Steve Anderson, head of Charles Schwab Retirement Plan Services, told PLANADVISER this “gap creates a huge opportunity for employers in partnership with their providers to increase participant engagement.” Seventy percent of survey respondents indicate their 401(k) is their only or primary source of retirement savings.  

Charles Schwab’s study, “The New Rules of Engagement for 401(k) Success”, found that use of professional advice has a positive impact on participant savings, investing behavior, and outcomes. Seventy percent of participants who receive 401(k) advice make changes to their deferral rates, and their savings rates nearly double as a result, jumping on average from 5% to 10% of pay.  

The average participant who has not received professional advice is invested in less than four (3.7) asset classes, where advice-based portfolios at Schwab have a minimum of eight asset classes to be properly diversified. In addition, the study found the vast majority (92%) of advice users stayed the course in their 401(k) portfolios from July 2008 through February 2009 and were fully invested for the market rebound through the remainder of 2009.  

The majority of survey respondents cited “approaching retirement” as the top reason to seek help with planning, but Anderson says this is too late. “What we would want to see is participants of all ages becoming involved in the plan which will be big part of their financial future,” he said.  

Anderson noted that despite where we’ve been in past few years, 34% of respondents say they trust their employers as a top source of savings and investment education, and 85% think their employer has their best interest in mind. “That’s why I think we can have a real dynamic play in marketplace with sponsors partnering with providers increasing participant engagement by engaging in advice,” Anderson said.  

According to Anderson, making advice a one-on-one experience is where sponsors will really get traction. Fifty-one percent of respondents say they prefer a personalized touch over online tools (23%) or brochures (4%). “The sooner we do it, the bigger the benefit to participants,” Anderson concluded.  

(Cont...)

Insights on Participant Use of Advice  

Charles Schwab’s study, “The New Rules of Engagement for 401(k) Success”, found less than half (47%) of 401(k) participants surveyed feel very confident when it comes to making investment decisions and 53% say they find retirement benefits even more confusing than health care benefits.  

However, although, 74% of Schwab’s plan sponsor clients are currently offering 401(k) participants access to investment advice, the majority of participants are not using it.   

Reasons cited by participants as to why they don’t engage in 401(k) advice even if it is available include: 

• 27% are getting financial advice elsewhere outside of the workplace; 
• 26% have more immediate concerns, such as day-to-day financial matters; 
• 23% don’t think they have saved enough money to warrant spending time to get help; and 
• 49% want to have more than $100,000 saved before taking the time to get advice. 

Sixty-five percent of survey respondents said they need some kind of motivation to use advice, and more than one third (34%) of them want proof that advice would improve their investment returns.   

According to the survey, 74% of participants indicated they trust personal financial advisers and 59% trust financial institutions as a source for savings and investing information and guidance.  

Other than “approaching retirement,” other top life events prompting respondents to seek help include changing jobs (29%), stock market volatility (28%), and loss of spouse or partner (23%).  

Anderson says that among 401(k) investors who have received advice in the last two years, 52% are confident in making investment decisions compared to 35% who want advice but have not received any. In addition, he notes that 69% of advice users believe they are good at saving in their 401(k) versus just 44% who want advice but have not received any.  

Participant survey data was derived from responses of 1,005 U.S. consumers who are employed full or part-time and participate in their company’s 401(k) retirement plan. The online survey was fielded by  Koski Research from June 9-17, 2010.  

Plan and participant analytics represent 911 qualified defined contribution plans and 755,000 participants serviced by Schwab Retirement Plan Services, Inc. Data was collected between January 1, 2005, and  June 30, 2010.