Benefits Think

The digital key to serving millennial retirement savers

Millennials are a mobile-first generation. They are fast adopters of technology and have come to expect the ability to manage all aspects of their lives through sleek mobile platforms. Retirement plans are no exception.

Millennials are much more likely to value mobile access to their 401(k)s than their parents are. Specifically, our September 2016 survey found that 57% of millennials consider the ability to manage their retirement plan account via a mobile app “very important” or “extremely important,” versus just 26% of baby boomers.

Hence, providers must build strong, multi-channel digital experiences if they are to serve young employees effectively.

The industry has made meaningful progress here in the past few years, but significant work remains. While many retirement plan providers have recently introduced mobile apps, their capabilities are often limited. For example, just 10 of the 19 leading retirement plan providers Corporate Insight tracks offer any kind of transaction capabilities via their iPhone apps.

While a significant improvement since four years ago — when just two out of 17 firms did so — the industry has yet to reach the standard set by other financial industry verticals, like banking and brokerage, where mobile transaction functionality is the new normal.

NEED FOR ADVICE AND EDUCATION
Beyond digital platform improvements, providers must recognize that millennials are early in their investing years and need help. Many are overly conservative in their investment selection, their risk tolerance deeply influenced by the financial crisis and subsequent market meltdown.

As such, firms should expand their advice and education offerings to ensure better outcomes for younger employees. Specifically, providers should enhance their online retirement planning and guidance resources, develop financial wellness initiatives that consider participants’ entire financial picture, and create more interactive and engaging educational resources.

Our recent data suggests that millennials highly value advice and are not receiving enough of it.

We asked participants to identify their retirement planning style ranging from self-directed to hands-off and found that millennials are most likely of all generations to seek some degree of professional advice — at 89% versus 78% of boomers. Millennials are also most likely to state that they would like to receive more retirement planning advice.

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Given that 89% of millennials are interested in receiving professional help, the fact that just 58% say they have been offered this assistance points to an unmet need for financial advice where young plan participants are concerned.

Notably, of those millennials who are interested in advice and have been offered access to it, only 59% have used the service. One possible explanation is that financial advice may be perceived as costly by younger plan participants, even though this cost may be shouldered by the sponsor, not the employee.

This highlights the importance of clearly articulating and communicating the menu of options available to employees. Some may be missing out on professional advice based on the incorrect assumption that it will be costly to them, while others may not be aware of the option in the first place.

INTEREST IN MANAGED ACCOUNTS
In addition to financial advice, young plan participants are open to the idea of managed accounts, as they offer features that make them more attractive than the traditional target date funds.

Managed accounts are more flexible than TDFs in that they can adjust asset allocation based on changing market conditions. They can also be tailored to participants’ unique needs instead of simply lumping participants into broad age groups. Of the Millennial DC plan participants we surveyed who are enrolled in a managed account, 81% indicated they are “satisfied” or “very satisfied” with the service.

Even more impressive, Millennials enrolled in a managed account were more likely to say they were “very satisfied” with their plan providers than those not enrolled or unaware of whether they are enrolled – 44% versus 27% and 23%, respectively.

With robo advisers popularizing low-cost managed accounts in the realm of non-tax-advantaged investing, it is easy to imagine awareness and thus interest rising within the defined contribution space as well. Young participants are especially likely to embrace this plan feature, given their openness to professional help with personal finance.

This presents an opportunity that is already being explored by fintech startups like Blooom, RebalanceIRA, Smart401k and Kivalia. If the brokerage space is any indication, plan providers stand to gain from developing automated online managed account platforms or considering opportunities for partnering with innovative startups targeting the retirement space.

As DC plans continue to grow as a share of the overall retirement market, it will be increasingly important to provide a range of customizable solutions that are effectively marketed to participants.

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