More and more clients are starting to feel like a million bucks. Literally.

The number of 401(k) millionaires at Fidelity totaled 654,000 as of the third quarter, the highest level in records going back to the early 2000s. The figures point to increased usage of 401(ks) among working professionals as the retirement planning vehicle of choice, replacing the private pension, as well as the role high employer matching rates can play. But for advisors, larger 401(k) balances also means their clients have greater exposure to the stock market.

“Most advisors are not thinking about risk enough,” said Stephen Dissette, an advisor with Horter Investment Management. “You want to protect your wealth from market risk because [with] one big market downturn, all of a sudden that seven-figure 401(k) becomes a 201(k).”

Who Wants to Be a Millionaire?

Several factors have facilitated the rise of 401(k) millionaires, including high employer matching contributions, strong market growth and the steady decline of Social Security as a reliable source of retirement income. The 401(k) is now a critical part of any client’s portfolio, said Matt Mormino, managing director of Brighton Jones’s retirement planning service. “I talk to 401(k) populations quite often, and I tell them it’s the ‘get rich slowly’ scheme,” he said. “Not just from an investment standpoint, but from a tax standpoint, too.” More 401(k) providers are expanding their individual services as part of their overall offering, he added, with a push to roll over assets — once someone is in retirement — to a platform’s own advisory solutions. “I expect we’ll continue to see a lot of that because there is just a tremendous amount of wealth concentrated in these plans,” Mormino said.

The Fidelity report also found:

• The average 401(k) balance was $144,400, up 9% from the third quarter of last year.
• The average contribution rate remained consistent at 14.2% for the second quarter in a row, with an average employee contribution of 9.5%.

It’s part of an advisor’s job to make sure their clients are actually living off of the money they’ve saved, Dissette said. This is because many clients, having saved up a robust nest egg through the years, are hesitant when it comes to actually spending the money. “[Advisors are] not putting together plans for people, they’re not rolling over these 401(k)s into IRAs enough. They’re not doing raw conversions,” he added. “There are a lot of issues out there.”

Capture the Dollar. So how should advisors secure those sweet, sweet 401(k) bucks? Mormino said thinking about it as early as possible is key. “Even if you’re not managing those dollars today, by adding value to your clients and … helping them think about it, when it does come time for those dollars to come out of the 401(k), it’s not going to go anywhere else.”

Don’t forget to like and subscribe.

Young investors are glued to their phones, but the extent to which social media shapes their financial decisions is striking. Among investors under 35, 61% have made decisions based on finfluencer recommendations, according to a new FINRA report. Across all age groups, nearly a third of investors use social media as an information source. Turning to the internet for guidance isn’t always a bad thing, but many of these same investors are far too confident in their financial knowledge. Half couldn’t identify clear signs of fraud, such as a product promising a “guaranteed, risk-free 25% annual return,” the report found. Even those with professional financial planners can be at risk, and advisors need to remind clients of the pitfalls of believing everything they hear on the internet.

“That myth of ‘fraud only happens with the little lady living alone on limited means’ just isn’t true,” FINRA President Gerri Walsh said during a press conference last week. She added that younger investors are frequently targeted precisely because they’re digital natives.

A Bad Finfluence

Social platforms can generate enthusiasm for riskier products. While most investors don’t dabble in meme stocks, about 30% of those ages 18 to 34 have bought a meme stock or similar investment simply because it was trending, according to FINRA.

The report also found:

• YouTube, Reddit and Instagram are among the top places investors go for information.
• Newer investors and people of color, particularly Black and Latino investors, are more likely to seek recommendations from finfluencers.

Follow Me. There are clear reasons people turn to social media for financial guidance. The content is free, accessible and abundant. Plus, events like the 2008 financial crisis and the long-term underperformance of active funds have also fueled distrust of traditional financial institutions, said Richard Coffin, investment analyst and host of the Plain Bagel YouTube channel.

While many creators offer well-researched information, those voices are often drowned out by more sensational and potentially harmful content. Coffin has a series of videos dissecting unsafe investing advice on TikTok. “You think about what type of videos pop up in your feed, and which one would do better — a balanced analysis with a nuanced take on a given stock, or a video promising thousands of percentage points of return?” he said. “There’s an incentive, unfortunately, to post hyperbolic content, even if it’s not inherently good advice.”

Anything that can go wrong, will go wrong.

It’s not scientific fact, but as someone who worked in the financial industry during the 2008 crisis and the dot-com boom, Ocean Park CIO James St. Aubin sees the validity of Murphy’s Law, especially now that most people seem to have an AI bubble caught in their throats. “I can’t say for certain that anything is going to happen, but we can say that the market is very vulnerable to change,” he said, adding that some investors must have their rose-tinted glasses on when justifying the massive multiples in the market today. “If that [rally] doesn’t materialize, that Wile E. Coyote thing happens when you look down and there’s no ground beneath you.”

His firm is all about risk management, and Ocean Park applies a trailing stop discipline — automatically selling an investment if it falls by a set amount — to every holding in its funds. Even if protecting clients from downside means giving up some upside, the firm is willing to make that trade, so that investors stay active in the market. “Left-tail events are the ones that can throw you off track,” St. Aubin said. “They can be financially devastating, but also emotionally devastating. You see a lot of people pull their money out of the market and lock in their losses because of an event.”

Advisor Upside sat down with St. Aubin recently in Manhattan to discuss his outlook on artificial intelligence, regulatory shakeups and the ever important human element of financial advice.

Read more.