More Retirement Savers Turning to Professional Advice: Vanguard

The total number of participants invested in a professionally managed allocation has more than doubled from 17% at the end of 2007, according to Vanguard’s recently released How America Saves 2013 report.

By 2017, Vanguard estimates that 55% of all participants will be entirely invested in a professionally managed investment option.

The annual report notes that in 2012, 36% of all participants in 401(k) retirement plans at Vanguard invested their plan assets in a professionally managed investment option, “dramatically improving their portfolio diversification and potentially making them more financially prepared for retirement compared with participants making investment choices on their own.”

Jean Young, co-author of How America Saves, said in a statement that “the number of participants completely turning their portfolio construction over to a professional, or obtaining advice from professionals, is an important trend in the potential future financial security of retirees. It represents a shift in responsibility for investment decision-making away from participants—many of whom may be inexperienced investors—to investment and advice programs that have been vetted by employers as part of their fiduciary obligations.”

The study also notes that 27% of all participants in 2012 were invested in a single target-date fund, 6% held a single traditional balanced fund, and 3% used a managed account advisory program. Also, 14% of participants who were offered an investment advice service through their plan adopted one.

The report also points out that average plan account balances rose by 10% in 2012, to $86,212, which reflects both “the effect of both ongoing contributions and market returns,” Vanguard says.

For participants with a balance at both the end of 2007 and the end of 2012—the worst five-year period in the markets in most people’s lifetimes—the median account balance grew 67% for the same reasons, Vanguard notes. “Nearly 90% of participants in this group saw their balances rise during this time.”

Steve Utkus, director of the Vanguard Center for Retirement Research, and co-author of How America Saves, says that “Some may look solely at plan account balances and underestimate the retirement readiness of Americans, saying that most of us still aren’t financially prepared for retirement.” However, he said, “when you look at the data comprehensively, the fact remains that many Americans are doing a good job accumulating private savings to supplement Social Security in retirement.”

Indeed, Vanguard says that many participants are “strong savers” in their plan. One-fifth of them saved 10% or more, 11% saved the maximum allowed, and 15% of participants over age 50 made catch-up contributions in 2012. “Taking into account both contributions made by participants and those made by employers to participants’ accounts, the average total savings rate was 10.5% in 2012,” the report notes.