Advisors Score With Older Investors

By Cyril Tuohy

InsuranceNewsNet

Research by Cerulli Associates has found that in the 401(k) market, financial advisors lag only the 401(k) provider as a source of investment advice. But advisors rise to the No. 1 spot as the investor gets older.

The Cerulli research found that 26.9 percent of 401(k) market survey respondents consider their 401(k) provider the No. 1 source of advice. Examples of a 401(k) provider include Fidelity Investments or Vanguard, for example.

That was followed by the 15.7 percent of respondents who consider their financial advisor the leading source of advice, 14.2 percent who said they have no source at all, and 11.8 percent who said they rely on family, friends or colleagues.

The findings, contained in the report, “Evolution of the Retirement Investor 2013: Influencing and Addressing Retirement Savings,” also reveal that 9.9 percent of respondents rely on their employers as the leading source of advice, 8.4 percent rely on a financial planner and 7.6 percent rely on the news.

Financial advisors, however, become the primary source of advice for 401(k) participants age 60 or older, the research found.

Advisors are the primary source of retirement advice for 20 percent of 401(k) participants between the ages of 60 and 69, edging out the 401(k) provider with 19.9 percent. Advisors are the primary advice source for 30.7 percent of 401(k) participants ages 70 or above, far ahead of the 401(k) provider with 19.4 percent, Cerulli said.

Assets in the 401(k) market totaled $4.2 trillion in 2013, according to the Investment Company Institute.

Where 401(k) participants go for advice has important implications for 2016. That’s when distributions from 401(k) plans are expected to outpace contributions to these popular employer-sponsored defined contribution plans for the first time.

“Distributions create opportunities as money moves from employer-sponsored plans to individual retirement accounts,” Bing Waldert, a director at Cerulli, said in a news release.

The report said that $77 out of every $100 rolled over from a 401(k) went to a company or an advisor with whom the investor had a previous relationship, the survey found.

Rollover contributions are expected to increase at a compound annual growth rate of 5.5 percent from the end of 2013 to the end of 2018, Cerulli also said.

The survey also queried advisors about their most frequent use of retirement income products and strategies.

One out of two advisors (50 percent), use dividend-paying mutual funds when creating a retirement income plan, 49 percent of advisors chose dividend-paying stocks and 38 percent favor bond mutual funds, the survey found.

Cerulli also said it found that 32 percent of advisors used variable annuities with living benefits for a retirement income plan, 28 percent chose fixed-income securities, 24 percent preferred “systematic withdrawals from variable annuities,” 14 percent liked packaged retirement income mutual funds, 12 percent favored annuitization and 7 percent advised using a reverse mortgage strategy.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].