Mobile phones and millennials are essentially inseparable. According to a recent study by Bank of America, 96% of young adult millennials (ages 18-24) view their mobile phone as the most important thing in their daily lives. A recent survey by Experian Marketing Services found that 43% of millennial respondents prefer to access the internet via their smartphone over any other method. This mobile lifestyle has clear implications for the financial services industry, including the Defined Contribution plan business.
In 2014, Wells Fargo found that 67% of millennials currently saving for retirement participate in an employer-sponsored retirement plan such as a 401(k), while 46% invest in an IRA. Unfortunately, the study also found that nearly a quarter of millennials that are saving for retirement don’t know how their funds are actually invested, meaning they are not in full control of their retirement. This suggests a serious problem when it comes to participant engagement. In part, we think this may be the result of the industry’s slow response to the rise of the mobile channel.
Last April, Corporate Insight explored this topic in a white paper and in our study The Millennial Shift: Financial Services and the Digital Generation. At the time, we found that the mobile platforms offered by retirement plan providers were inferior, from a functionality standpoint, to what’s available from financial institutions in such other verticals as banking, brokerage, credit cards, and property and casualty insurance. Forty-six percent (46%) of millennials surveyed in Corporate Insight’s 2013 DC Plan Participant Survey stated that it was “very” or “extremely important” for them to be able to access their retirement plan account via a smartphone or tablet. Despite such clear demand, only 53% of the 17 firms CI tracked in our Retirement Plan Monitor service offered an iPhone app, while just 41% offered an Android app at that time. In contrast, aside from a few full-service brokerage firms, nearly all banks, credit cards, P&C and self-directed and hybrid brokerage firms we track offer apps.
Example: Charles Schwab Workplace Retirement App
In just a decade, millennials are expected to make up 75% of the work force. Firms must adapt to this increasingly important group’s expectations if they want to engage with these younger participants and serve them effectively. While millennials may be captive to their employer’s plan provider, a poor mobile experience clearly detracts from the provider’s ability to satisfy participants’ financial needs and potentially promote and cross-sell other financial products and services to them.
We recently decided to perform a DC industry scan to reassess the mobile services offered by leading firms. Unfortunately, little has changed since last spring. Only one additional retirement provider that Corporate Insight tracks has introduced a mobile app, leaving 41% of the total coverage group without a mobile app for clients. Mobile transactional capabilities also remain very limited. Of the 17 firms we examined, only three allow for changes to future contribution levels, five allow for current contribution rate changes, four allow for fund exchanges and three offer the ability to rebalance an account via mobile app.
While some argue that a mobile app is not necessary for plan participants due to the long-term nature of retirement, this is ultimately shortsighted. A 2013 study found that one in five millennials were already mobile-only Internet users, so firms need to offer a mobile platform where participants can manage their plans and perform transactions. The ability to rebalance one’s account is especially important considering the growing practice of plan sponsors auto-enrolling employees into target-date funds, which can often be composed entirely of stocks. Of the firms CI tracks, only T. Rowe Price and Vanguard give millennials the ability to change the contribution rate, how future contributions are invested, rebalance an account and exchange funds via a mobile platform. Other plan providers will need to play catch up if they are serious about helping young participants save for retirement and manage their plan investments.