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Personalized Retirement Advice and Managed Accounts: Who Uses Them and How Does Advice Affect Behavior?

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by Julie Agnew

WP#2006-9  

Abstract

This paper investigates two methods for improving participants’ asset allocations in their 401(k) plans: personalized online advice and managed account services. This paper uses a unique new dataset of individual-level administrative data from one 401(k) plan and recommendation data from an advice provider. Preliminary results suggest that online advice and the managed account service appeal to different populations. Managed accounts tend to be attractive to individuals across most demographic groups, while the online advice appeals more to higher salaried, full-time workers. In addition, individuals who show a predisposition to seek advice are more likely to use one of the methods than to do nothing. Finally, although a causal relationship cannot be determined, trading activity is higher for those using the online advice system compared to those who do nothing. Future research will investigate in more detail how portfolio allocations and trading are influenced by use of the two systems.

For executive summary in PDF

For full paper in PDF

Julie Agnew is an Assistant Professor of Finance and Economics at the College of William and Mary. The research reported herein was performed, in part, pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The findings and conclusions expressed are solely those of the authors and do not represent the views of SSA, any agency of the Federal Government, the College of William and Mary or Boston College. The author thanks Financial Engines and Hewitt Associates for supplying the data used in this study. In particular, I would like to thank Asma Emneina, Robert D’Onofrio, Matthew Todd, Yan Xu and Lori Lucas for their support in making this study possible. I greatly appreciate their assistance with the data collection and for answering the many questions that arose during the course of this project.
Tags: Private Pensions, Working Papers,
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