In Practice February 27, 2017

Adviser Independence Trends Impacted By Fiduciary Uncertainty

“Regulatory pressure increases the appeal of independence and the need to shift the active versus passive conversation,” according to a new report from Cerulli Associates. 
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The February 2017 issue of The Cerulli Edge – U.S. Monthly Product Trends Edition finds about half of U.S.-based financial advisers view the registered investment adviser (RIA) business model as a sensible solution to increased regulatory pressure.

Even as the Trump administration makes broad pledges to roll back financial regulations, including both Dodd-Frank and the Department of Labor (DOL) fiduciary rule, advisers are feeling anything but certain about what the future may hold. Beyond the quickly shifting picture in Washington is the constant pressure of participation-driven litigation and the threat posed by emerging advisory technologies that, at least according to some, threaten the traditional approach to one-on-one advice, whether fee- or commission-based.  

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According to Cerulli’s research, nearly two-thirds (64%) of broker/dealer affiliated advisers “plan to shift more of their business toward fee-based advisory models in an attempt to be better positioned to comply with the conflict of interest rule, if it is implemented.”

Cerulli posits that, “as advisers become increasingly comfortable operating in a fee-based environment and embrace fiduciary duty,” they may be more likely to consider moving away from commissions-based business models associated with the B/D channel, in favor of the RIA approach. By the agency’s own admission, the DOL fiduciary rule was designed to push advisers forcefully in this direction. This is why close to half (47%) of all advisers “believe that the RIA business model will become more appealing post-DOL conflict of interest rule.”

As adviser business models shift there is also an ongoing reassessment of investment approaches. Cerulli finds “mutual funds” as a broad asset category “witnessed their first positive month of flows ($19.3 billion) since May 2016.”

“Assets for the vehicle grew 1.6% to $12.7 billion in January,” Cerulli reports. “ETFs gathered flows of $40.3 billion in January, building upon a very successful 2016. January flows combined with positive capital market performance led to ETF asset growth of 3.5%, ending the month above $2.6 trillion.”

The report concludes that “cost is a key investment consideration, particularly when focusing on long-term outcomes, but advisers and investors must incorporate other elements into their thinking.”

More information about obtaining Cerulli Associates research is available here. 

Data & Research February 27, 2017

Boomers Still Struggling Post Recession

Although the Great Recession is a thing of the past, Baby Boomers are still struggling to stay afloat financially and many have stopped investing for their future.
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A decade after the recession of 2007, more than half of Baby Boomers feel they have not benefitted from any recovery, according to a new study by the Center for a Secure Retirement (CSR). The survey also found that only 2% believe the economy has fully recovered. Twenty-eight percent are making more conservative investment decisions and 26% have stopped investing.

Throughout the decade, many Boomers have readjusted retirement expectations to meet this situation. Before the financial crisis, 45% of those with annual household income between $30,000 and $100,000 and less than $1 million in investable assets, expected to retire debt free. Today, that number stands at 34%. Two-thirds of respondents are worried about facing another financial crisis.

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The study also revealed that three in 10 (34%) middle-income Boomers plan to rely on personal savings or earnings for their primary source of income in retirement, down from four in 10 before the crisis. This reliance appears to be shifting to Social Security, where four in 10 (38%) middle-income Boomers expect to rely on Social Security for their primary source of retirement income, versus three in 10 before the crisis.

According to the latest CSR report, before the crisis, 35% of middle-income Boomers expected to work full time or part-time in retirement, but today 48% expect to work full or part-time.

“Ten years ago, Baby Boomers had a clear vision of what a personally satisfying retirement looked like,” says Scott Goldberg, president of Bankers Life. “But today, many are realizing they will not be as financially independent in retirement as they once expected.”

With pressing challenges ahead, more than eight in 10 have taken specific actions to meet their new demands: Reduced discretionary expenses (54%), reduced recurring monthly expenses (47%), and creating and maintaining a household budget (35%)

As a result, today more than half (57%) of middle-income Boomers feel confident in meeting their daily financial obligations, up from only 41% during the crisis.

Long-term financial planning, however, is still a target for many. Two in 10 middle-income Boomers now save a smaller percentage of their paycheck, and nearly one quarter don’t save anything.

“Boomers should plan for any unexpected costs that can arise, especially expenses related to retirement, such as long-term care or critical illness,” says Goldberg. “Also, they should make a concerted effort to pay down debt before retiring to create more financial flexibility.”

The CSR survey “10 Years After the Crisis: Middle-Income Boomers Rebounding But Not Recovered” is part of a series of studies commissioned by the Bankers Life Center for a Secure Retirement. It was conducted in October 2016 by independent research firm The Blackstone Group.

The findings were from one Internet-based survey of 1,000 middle-income Boomers. Quotas were established based on the U.S. Census Current Population Survey data for age, gender and income to obtain a nationally representative sample.

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