4 ways in-plan advice can help drive better participant outcomes

A recently published Vanguard white paper, How to Talk About the Value of Advice, by Vanguard Investment Strategy Group’s Stephen M. Weber, Paulo Costa, and Min Kim, provides insights into the sources of advice value and how Vanguard’s advised clients perceive that value.

For plan sponsors who are considering offering advice in their plan or for those who already have in-plan advice, this research can help to justify the cost of advice fees by demonstrating the measurable value employees can receive.

The researchers conducted an online survey of 13,400 working and retired investors to measure their perceptions and preferences related to advice value. The survey confirmed that investors value all the sources of advice value that make up our framework:

• Portfolio value comes from building risk-appropriate, tax-aware investment strategies that help generate better after-tax, risk-adjusted returns.
• Financial planning value is delivered through specific interventions that help investors achieve their unique life goals.
• Emotional value results from the peace of mind and confidence that come from having professionally managed and monitored financial plans and support.
• Time value is achieved when advice manages complex financial tasks—from monitoring portfolios to tax optimization—freeing investors to focus on their careers and families rather than worrying about their financial future.

Along with the survey, the research was informed by an analysis of the projected advice outcomes of actual and hypothetical investors.

To measure the value offered by specific advice components, the researchers used a straightforward comparison method. They examined what would likely happen to an investor without advice (the baseline scenario) and compared it with what could happen when the investor received a specific advice intervention.

First, the researchers created a realistic picture of an investor’s financial path without advice—for example, staying in a cash default option or following an off-the-shelf investment strategy. Then, they modeled what happens when a specific advice intervention is applied. By running thousands of potential market scenarios for both paths, they could measure the difference in projected outcomes, revealing the quantifiable benefits of advice.

Researchers found that the most significant, yet often overlooked, source of advice value is emotional—providing participants with peace of mind and confidence in their financial future. The research confirms this is the primary reason investors seek advice, with 68% of surveyed clients rating it as number one.

Peace of mind is the most important reason to get advice, but portfolio, financial planning, and time value are also important

Surveyed investors were ask to choose up to three responses to “Why do you get financial advice?” They were then asked to choose their top reason from the three. Only the top five responses are shown below.

For plan sponsors, this emotional value could translate to reduced financial stress and increased employee well-being. When participants know their financial plan is professionally monitored and updated, they experience greater confidence in meeting their goals. This peace of mind is a critical component of financial health that can contribute to a more focused and productive workforce.

“Peace of mind isn’t a soft benefit—it’s the number one reason investors seek advice, and our research shows 86% of advised clients feel they have more peace of mind than they would if they were managing their finances on their own,” Weber says.

The vast majority of investors report getting emotional value from advice

Surveyed investors replied to the statement “Compared to managing my finances on my own, having an advisor service gives me (more peace of mind, less peace of mind, neither more or less) peace of mind.”

A primary aspect of managing one’s own finances is managing an investment portfolio. With advice, participants’ portfolios are built and managed for them according to their goals and individual situations. This can add much greater value than when a participant is invested in a standard investment product, such as a target-date fund (TDF).

The researchers compared projected outcomes with TDFs to the outcomes for the same investor with a personalized portfolio tailored to their unique goals and risk tolerance. They found that more than half of investors with personalized glide paths were projected to see utility-equivalent value in excess of 40 basis points of annual value.

Many investors with personalized recommendations get more value relative to a TDF 

“Providing investors with more suitable portfolio allocations aligned with their individual risk tolerance rather than a one-size-fits-all solution delivers greater value in terms of their projected outcomes,” Weber says. “Advised investors also benefit from access to retirement planning capabilities that can further boost the value of the advice they receive.”

Helping investors plan for retirement and other goals falls within the financial planning advice pillar. For employers, this means advice can guide participants in transforming their abstract savings goals into concrete, actionable plans.

A powerful example from the research is dynamic spending, a strategy that adjusts retirement withdrawals based on market performance.* This approach allows retired participants to spend more during favorable markets while safeguarding assets during downturns. Advised participants can also benefit from other financial planning tools, such as the goal optimizer and Social Security optimizer, which can help them improve key aspects of their financial journeys.

“By helping employees optimize their financial planning, advice delivers clear value that enhances financial well-being and retirement readiness—a direct benefit plan sponsors can point to when evaluating program effectiveness,” Weber says.

Time, the fourth source of advice value, relates to each of the other three advice pillars. Time value is achieved when advice manages complex financial tasks that participants lack the time, willingness, or expertise to handle on their own. For employers, this means advice can save participants valuable time and mental energy. Instead of spending hours monitoring investments, researching tax strategies, or worrying about market volatility, participants can trust advice to handle these responsibilities.

This time-saving benefit enhances participants’ quality of life and allows them to focus on their careers and families, which can lead to a more engaged and less stressed workforce.

By understanding these four sources of value—portfolio, financial planning, emotional, and time—plan sponsors can fulfill their fiduciary duty with confidence. Financial advice is not an expense; it’s an investment in employees’ financial well-being and future that delivers comprehensive and measurable benefits.

Ready to explore how in-plan financial advice can transform your retirement program?

Dive deeper into the data and methodology behind these findings: 
Read the paper

Learn how to implement a value-driven in-plan advice program:
Advice and managed account services

Learn more:
The emotional and time value of advice

*Dynamic spending is not available through the Digital Advisor® offer.

Notes:

• All investing is subject to risk, including the possible loss of the money you invest.
• Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fun would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment I target-date funds is not guaranteed at any time, including on or after the target date.
• Vanguard’s advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.