The New Demographics Of Planning

Bridging the Millennial ‘Advice Gap’ for Retirement

Advisors urged to take multi-layered approach, including guidance, education, managed account strategies

by E. Thomas Foster, Jr.

Mr. Foster is Assistant Vice President, Strategic Relationships, for Massachusetts Mutual Life Insurance Co. (MassMutual). Visit

The 2008 financial crisis was a watershed event that left many people with psychic scars, especially when it comes to money and investing.

Investors saw their retirement savings drop by as much as 50 percent or more during the crisis. Some investors never recovered. Many people – especially Millennials – seemed to develop a fear of equity markets and approach investing with extreme caution. As little as a year ago, four out of five Millennials were not investing in the stock market, according to a Harris Poll.1

Nearly 10 years after the market crash, Millennials’ fears might have vanished. Younger adults, it seems, are now much more likely to make rash investment decisions compared to other Americans by reacting to short-term market volatility, according to the MassMutual Retirement Savers Study2.  At the same time, Millennials yet are less likely to rely on professional financial advice, the study found.

It’s indicative of a serious “advice gap,” one that financial advisors may help bridge. Advisors can make a difference, first by helping guide Millennials and other clients individually. Advisors who support retirement plans can also connect plan participants to educational resources and online tools through employers and retirement plan providers. And for those who need guardrails to stay on track, consider investment strategies such as managed accounts and target date funds.

Fundamental financial planning guidance holds that time in the market is far more effective than trying to time the market. Morningstar reports that bad decisions by investors trying to time the equity markets reduce returns on average by 2.5 percent a year.3 In addition, the longer investors remain in the market, the better their chances of making money, according to data from Standard & Poor’s.4

Divided on Direction

When MassMutual’s study was conducted this spring, Americans were divided on the likely future direction of the markets and the potential opportunities. Overall, 31 percent didn’t view the recent market activity as anything unusual, with another 28 percent saying they expected the market to correct after the recent surge, and 19 percent predicting a longer bull market. One in five (21 percent) survey respondents said they either don’t pay attention to the markets or simply don’t know how they view the recent stock market activity.

Despite the split views, the study found that 60 percent of adult Americans said they were sticking to their retirement savings strategy, with 63 percent of women and 56 percent of men saying the same.  The older the investor, the more likely he or she was to maintain a hold tight strategy, with only 23 percent of Millennials continuing their current strategy compared to 59 percent for those ages 35-49, 74 percent for ages 50-64 and 82 percent for ages 65 and older.

So what were Millennials doing with their money? A third (32 percent) said they were moving more of their retirement savings into stocks and equities to potentially benefit from future growth. Meanwhile, a quarter (25 percent) said they were shifting into fixed-income investments such as bonds or money market accounts in case of a market correction.

The ‘Advice Gap’

Many Millennials were moving money without the benefit of investment advice or guidance. Overall, 32 percent of Americans polled said they relied on a financial advisor to guide their investment decisions. However, older respondents were much more likely to use an advisor, with 62 percent of those ages 65 or older relying on professional money advice as compared to 8 percent of Millennials. Women (36 percent) are also more likely to rely on an advisor than men (29 percent), the study found.

The study also found that one in 10 Americans admitted to being uncertain about how to invest their retirement savings. Millennials were twice as likely to be uncertain while only 1 percent of those ages 65 or older said the same. On a positive note, Millennials were almost twice as likely as compared to the general population to rely on their employer’s educational programs and resources to guide them when investing and allocating their retirement savings.

Retirement Resources

The data points to a potential opportunity for advisors to help Millennials and other retirement savers with a multitude of resources and strategies, starting with a holistic approach to offering advice and guidance. Advisors should first help clients and retirement plan participants make the most of individual strategies such as IRAs as well as employer-sponsored retirement plans such as 401(k)s, 403(b)s or 457s.

Review the educational programs available through providers for employers that sponsor a 401(k) or other retirement plan. Employers typically look for their advisor to run educational sessions for participants and assistance may be available through your provider in the form of retirement education specialists who can conduct group meetings and even one-on-one sessions.

Many Millennials were moving money without the benefit of investment advice or guidance

Most providers offer online resources and our study found that Millennials are more inclined than older workers to connect with such tools. Online resources often include calculators to determine how much savings are needed to reach participants’ retirement goals, how that savings translates into income, information about available investment options and how best to allocate savings within them based on factors such as age, risk tolerance and others.

Of course, anyone who is covered by Social Security can receive annual reports about their contributions and projected income at different retirement ages. It’s essential to know how much Social Security will contribute to your retirement income when making decisions about saving. Participants can learn more at

Retirement Guard Rails

Another bright spot in the research was the finding that Millennials are more likely to rely on investment strategies such as managed accounts that automatically allocate investments based on an investor’s age, risk tolerance or other factors. Managed accounts as well as target date funds (TDFs) can serve as a qualified default investment alternative (QDIA) for retirement savers who are uncertain about what investments to choose.

TDFs, which reallocate assets to more conservative investments over time as the investor gets closer to retirement, have become increasingly popular in recent years. The participant selects an appropriate fund that is nearest to his or her planned retirement date. The assets within the fund are allocated to a combination of equities, fixed-income investments based on the time horizon to retirement. Investments are then reallocated along a “glide path,” which becomes more conservative as a participant approaches retirement. Investments in these options are not guaranteed and the investor may experience losses, including losses near, at, or after the target date. Also, there’s no guarantee that the options will provide adequate income at and through retirement.

While age is the primary determining factor, other TDFs, also known as “lifestyle funds,” are allocated based on a participant’s risk tolerance with the same guiding principle of reallocating assets to a more conservative mix as the participant nears retirement. Age-based funds have recently eclipsed risk-based funds in popularity.

Managed accounts are built on the same principle of shifting assets to a more conservative mix over time but the actual asset allocation is unique to each individual.  Assets are typically allocated based on each participant’s personal data, including the retirement account balance, contribution level, income replacement goal, age and other information. Like a TDF, the assets within a managed account are also reallocated over time as the investor approaches retirement.

Increasingly, advisors are recommending managed accounts as a way for plan sponsors to drive higher rates of savings and potentially enhance returns. A 2014 Morningstar study of more than 58,000 retirement plan participants showed that those enrolled in managed accounts or who received some kind of financial advice increased their savings rates by nearly 28 percent, boosting deferral rates to 10.1 percent from 8 percent on average.5 Compounded over time, that change in savings may have a significant impact on the total savings at retirement.

Behavioral Counseling

While the sudden predilection of some Millennials to make ill-timed, risky investment decisions is worrisome, there are many resources available to help counter such behaviors. To start, advisors have plenty of opportunity to offer guidance and education to begin bridging the “advice gap.”

True, many Millennials have limited resources when it comes to saving and investing. But the data shows that investors are more likely to seek advice as they get older and presumably wealthier. The time you take today to help a younger, less affluent client get on the right path to a comfortable retirement can potentially pay bigger dividends for the both of you in the future. ◊




1. Stash and Harris Poll, March 2016, conducted online March 15-17, 2016 among 2,093 U.S. adults ages 18 and older, among whom 489 were Millennials (ages 18-34),
2. The MassMutual Retirement Savers Study was conducted by PSB as part of an omnibus survey among 1,002 respondents fielded April 3-10, 2017. The results shown here reflect the 450 Americans who currently have a 401(k) plan and/or other retirement investments.
3. Bad Timing Costs Investors 2.5 percent a Year, June 11, 2014, Morningstar,
4Time in the Market is More Important than Market Timing, Chart, Based on S&P 500 daily total return data since 1928,
5. The Impact of Expert Guidance on Participant Savings and Investment Behaviors,