Clients favor firms that are their main source of retirement advice

Advisers who want to win the biggest chunk of a client’s business could benefit most by being their go-to source for retirement planning, a new report suggests.

Financial services firms that people identify as their main source of retirement advice tended to be those with the biggest “share of wallet,” or percentage of assets clients have with them, consumer research firm Hearts & Wallets found in a report available Wednesday. The firm used a decision-tree analysis based on data from more than 10,000 relationships that clients have with different financial services firms.

Companies including Ameriprise, Edward Jones, Morgan Stanley, Fidelity Investments, Wells Fargo Advisors and Merrill Lynch had at least 50% of their customers say that the firm was their main source of retirement advice, according to Hearts & Wallets. Firms that are the primary source of retirement advice on average have 72% of a client’s invested assets, compared with 28% among those that are not the primary retirement advice providers.

The benefit is most pronounced with clients who have smaller account balances, however. As asset levels increase, people are more likely to spread their money across more financial services providers, even if they keep the bulk of their investments at one firm, Hearts & Wallets CEO Laura Varas said. And those with small balances, often in 401(k)s, for example, might be more likely to leave money with the same firm after changing employers or retiring.

Once a household reaches an average of $375,000, they start keeping less money with their primary financial services company, the report found.

“For lower-balance households, people who’d rather keep it simple, there’s an argument for keeping money in-plan,” Varas said.

Among all investors, only about 20% said they were comfortable leaving their money in a plan sponsored by a former employer — but that's nonetheless up from 13% who said that in 2010. Just over a third of people said they were opposed to that, and about 46% said they were on the fence.

Winning rollover business from those clients often means getting a big share of their invested assets, as the predicted share of wallet they give to individual companies is higher, the report found. Even though 401(k) plans increasingly offer managed accounts and financial wellness services, people roll money out of plans in order to get more personalized advice that includes consideration of topics like real estate and tax strategies, according to the research firm.

What that means for retirement plan advisers, especially those who have a wealth management business, is that it pays to provide different levels of advice, Varas said.

“It’s about offering explicitly differentiated depth of retirement advice. And if [a firm] can’t do that within the confines of the plan, then they have to find a way to do it in a retail model,” she said, but noted that “the competition is going to be fierce.”

Additionally, households with more than $375,000 in assets were more likely to say they would leave money in-plan if they rated their trust levels with financial service providers highly, Hearts & Wallets found.

As a consequence of the pandemic, a greater portion of people have been putting a bigger chunk of their assets with a single firm, as a result of spending less and being able to save more, Varas said. Last year, 62% of households across income levels had at least 75% of their assets with a single financial services firm, up from 50% of households in 2018 and 2019.