The Value of Professional Financial Advice on Investor Behavior During the COVID-19 Pandemic

Employees are commonly defaulted into either a homogeneous passive investment such as a target-date fund, or into a managed account that offers personalization and access to an advisor. Higher performance among investors in target-date funds suggests a possible behavioral benefit of a passive default that requires no active monitoring by investors. Access to a human advisor and an asset allocation matched to employee risk preferences can also help investors avoid trading after a market decline. This paper explores the relationship between trading activity and advice-seeking behavior among five million US DC participants during the COVID-19 pandemic, comparing self-directors and target-date fund investors to those using managed accounts service. We find participants who use target-date funds are less likely to phone during a market crash. Participants in managed accounts are the least likely to trade after seeking advice. These findings are consistent with the hypothesis that passive default can improve outcomes where active choice can harm outcomes, and personalized defaults with access to advice can help participants avoid investment mistakes.