A new Schwab survey found that 61% of 401(k) participants feel that their financial situation requires financial advice. That figure represents a 600-point jump from a year ago, when 55% of respondents felt that way, according to Schwab's. 2024 401(K) Study with Participants.
“There is an absolute demand, an insatiable demand for financial advice, and it's growing,” said Joseph Smolen, executive vice president of core and institutional markets with Empower, a retirement plan recordkeeping company. “Americans, especially 401(k) participants, are looking for advice.”
Smolen cited results consistent with a similar Empower survey completed in 2023, which found that 93% of respondents felt that the availability of financial and retirement tools on their providers' 401(k) websites was a added value for them.
There is tremendous demand among regular Americans for financial advice, but most wealth management firms are leaving money on the table by focusing exclusively on going after high-net-worth clients, said Brad Arends, co-founder and CEO of Intellects, a financier. advisory firm that works with both employers offering 401(k) plans and individual investors. In Arends' view, that's a mistake as wealth managers will eventually lose that potential business to financial services giants like Schwab and Fidelity and retirement plan holders like Empower. Fidelity, Schwab and Vanguard have hired hundreds of CFPs in recent years in an effort to provide financial advice to plan participants on a large scale, he noted.
Meanwhile, while there are RIAs that specialize in servicing 401(k) plans (Arends' firm was formerly one of them), there is still little crossover between those firms and traditional wealth managers.
“I'm sitting at a table with a group of wealth managers, and none of them are in the 401(k) space in terms of providing plan services,” Arends noted. “They're trying to get ahead of the high net worth, and that's a crowded space today. Everyone is trying to follow those people. The big opportunity today is not in the C-suite. The C-suite is already crowded. But the ones who are not being served are the rich, the American workers. The private wealth industry doesn't touch the super-rich because they've been told forever that they can't make money there, and that's just false.”
The Schwab study found the highest percentage of 401(k) participants who feel they would benefit from financial advice among millennials and Gen X members, at 61% each. Additionally, 58% of baby boomers and 53% of Gen Z members indicated that their financial situation warranted financial advice.
Survey participants indicated that they would feel significantly more confident making 401(k) investment decisions with the help of a financial professional than on their own. In addition, 55% of respondents said they would feel very confident in their decisions with professional help versus 29% who felt the same degree of confidence in making investment decisions on their own.
Respondents also indicated a strong preference for receiving financial advice from a human being rather than computer-generated recommendations. Overall, 60% said they were very likely to follow financial advice from a human versus 19% who would treat computer-generated financial advice the same way.
This corresponds with what Empower has seen in its business. “Americans are looking for advice, but they want to do it in a dual format,” Smolen said. “They'll use an online login and go through some online tools, but at the end of the day, they still want a human to talk to. And I would agree that we see it generationally as well, where the younger generation is taking a hybrid approach – online tools, but I still want to talk to someone when money matters.”
The top issue 401(k) participants want help with is calculating how much money they need to save for retirement — 42% cited this as an area where they need support. Another 40% would like specific advice on how to invest their 401(k). In addition, 39% want help creating an income stream in retirement, 37% would like advice when it comes to figuring out what age to retire and 36% want help preparing for tax expenses in retirement .
More often than not, the topic of discussion with 401(k) participants tends to center on whether they have enough savings for retirement and whether they're saving enough money to reach their goals, Smolen said. Other common issues that come up are asset allocation/portfolio construction and debt management, including student and mortgage debt, he said. Clients who are closer to retirement age also want to discuss how to spend their nest egg.
However, despite 401(k) participants' desire for financial advice, Schwab found that only 35% of respondents actually get their investment recommendations from professional financial advisors. The top source of advice remains 401(k) plan administrators, at 39%. In addition, 27% of respondents get their advice from friends and family, 25% from their employers, 12% from the business media and 12% from their accountants. Other sources of financial advice included social media, bankers, brokers, lawyers and AI tools.
The Schwab survey was conducted by Logical Research and administered online between April 17 and May 3 of this year. It included 1,000 participants aged 21 to 70. All participants work for companies that have more than 25 employees and offer 401(k) plans. All respondents contribute to 401(k) plans offered by their company. The survey also included 100 additional 401(k) plan participants ages 21 to 27 to gauge the sentiment of Gen Z versus those of other generations.