Why digital retirement tools are targeting younger clients

Younger clients are taking a deeper interest in retirement planning and digital wealth management firms are taking notice.

Some of the leading RIAs, asset managers and TAMPs — namely, the Carson Group, BlackRock and Envestnet — updated their retirement packages with new tools to track target-date funds and savings statistics, ultimately giving clients more sophisticated information about their retirement options.

BlackRock’s latest update is called Target Date Explorer, a tool designed to help institutional and financial advisors find the most appropriate target date funds for clients, according to BlackRock managing director Dagmar Nikles.

“TDFs provide easy access to diversified and age appropriate asset allocation,” says Nikles. “This simplicity is appealing to many participants including younger participants that are starting to save for retirement.”

In fact, younger clients are choosing TDFs at a higher rate than other client segments, according to data from the Employee Benefit Research Institute. At the end of 2016, 64% of plan participants in their twenties held TDFs, compared to 45% of participants in their sixties. And, among recently hired participants with two or fewer years of tenure, TDFs were chosen at a higher rate (59%) compared to all 401(k) plan participants (52%).

While TDFs can be straight forward for participants, advisors looking to compare different options face more moving parts than other retirement vehicles, which will factor into future outcomes for retirees, Nikles says. The tool lets advisors compare three TDFs at a time and breaks down performance metrics, like: objective, investment process, asset class and allocation, implementation, fees and past performance, among other things.

TDFs have become a major source of growth for BlackRock's direct-contribution business, which reached nearly $230 billion in AUM as of the third quarter of 2018, according to the firm. The world’s largest asset manager offers index, enhanced “Smart Beta” and active TDF options.

New digital offerings are also looking to address a growing concern for many Americans — maintaining their current lifestyle into their golden years. The Carson Group launched a web-based tool to help investors better understand their overall retirement picture. The six-question tool provides education on current savings, estimated future contributions and calculates the potential effect on projected income in retirement, according to a spokeswoman.

The new feature also collects prospective client information after they use the tool — like name, email and zip code — and doubles as a lead generation tool to help advisors gain new clients, according to the firm.

Enhancing engagement with clients is critical for advisors, especially when it comes boosting organic growth, says Aaron Schaben, executive vice president of Carson Group. The Omaha, Nebraska-based firm works with 89 partner firms and currently serves more than 20,000 families, according to a spokeswoman.

Carson has invested upwards of $60 million over the last few years into its technology platform, according to the firm.

A growing percentage of Americans say they don't know if they can cover basic expenses in retirement. Only 32% of retirees feel very confident in their ability to live comfortably through retirement, according to a survey by the Employee Benefit Research Institute. That number falls to just 17% for current workers. Client confidence in the ability to cover basic expenses and medical expenses dropped in 2018 from the prior year.

Envestnet has also boosted it planning capabilities. The world’s largest turnkey asset management provider announced new tools for advisors to calculate the likelihood a plan will meet clients’ long-term goals into retirement. A new feature is a goals-based method that prioritizes important goals probabilities over less important ones, says the firm.

Envestnet landed $123 million in funding when BlackRock took a minority stake in the company in November. The new influx of “helpful capital,” will likely be used to continue building out and supporting the massive Envestnet ecosystem, says Envestnet president Bill Crager. His firm works with more than 92,000 advisors and 3,500 companies, according to the firm, including some of the largest U.S. banks, wealth management and brokerage firms and hundreds of RIAs.