Younger generations saving money in their retirement plan are interested in seeking help from a financial professional who can assist them on making important financial decisions, according to research released by Cerulli Associates.
Of 1,500 active 401(k) plan participants and retirees surveyed for the U.S. Retirement Edition of Cerulli Edge, 15% of Generation Z and 35% of millennials said they work with a financial advisor to plan for retirement or to help them manage their retirement assets, according to the study.
In addition, when asked who the participants would seek advice from before making a major financial decision, 71% of Generation Z cited a friend, family member or colleague as their choice, with 68% naming a financial advisor as their preferred option, according to the study.
Millennials were almost tied for both categories. In their case, 51% selected the financial advisor and 50% selected the friend, family member, or colleague, the study said. In other words, a financial advisor was in both generations’ top two choices.
“They clearly want someone they can trust who is in their social circle, but they perhaps can’t afford the use of a financial advisor outside of their retirement plan,” said Elizabeth Chiffer, analyst and author of the study. “So, it leaves the door open for an in-plan financial advice solution to meet these younger investors where they are.”
The study found that overall, 57% of active participants would use a financial advisor to help when making significant financial decisions. In addition, only 33% of the participants involved said they currently use a financial advisor.
Younger active 401(k) participants are being automatically enrolled into their plans, according to Cerulli. However, those plans come with expensive advice options young investors may wish to take advantage of but cannot afford.
“Retirement plan providers that seek to improve the financial well-being of their youngest investors, and potentially set the stage for future financial advice relationships with them, will need to build out cost-effective solutions to effectively address their financial challenges at scale,” Chiffer said.
It means that plan sponsors have an opportunity to develop in-plan services for participants to help them with advice on how to properly invest their money for their future, the report stated. The numbers indicate it is a problem that needs to be addressed across generations.
Plan sponsors can help investors through education and better advice options, according to Cerulli.
"Lower-cost solutions combined with effective communication and employee engagement campaigns can address the financial challenges most participants face while creating opportunities for providers to service assets across the lifetime of the participant,” it said.
While the easy solution might be to gravitate toward the older generations because they tend to have more money and more complex financial situations, it does not mean that younger generations are not in need of help, Chiffer explained.
“[The younger generations] are really at the beginning of their careers and retirement savings journeys such that some engagement with a financial advisor or professional that isn’t perhaps that long-term relationship outside of the plan [may be warranted],” she said.
While firms have been turning toward more technology-driven tools for retirement investors, including robo-advisors and even AI, Chiffer pointed out that the results of the report prove that there is no substitute for human interaction.
“While we have those digital solutions and they’re great,” she said, “some things can’t be discussed or decided through digital engagement and there’s a higher level of trust with that human component.”