Data & Research September 14, 2016

PANC 2016: Financial Stress Survey

Americans are overwhelmed by financial stress, according to John Hancock's Retirement Plan Services latest survey.
Reported by

The third annual John Hancock Retirement Plan Services (JHRPS) survey found Americans are overwhelmed by financial stress—and they are not taking any steps to alleviate this problem. It is incumbent on retirement plan advisers to help participants overcome this through automatic features—including automatically enrolling them into emergency savings accounts, along with engaging them and educating them, said Patrick Murphy, president of JPRPS, speaking at the 2016 PLANADVISER National Conference.

“Our business is about helping people retire—putting the individual participant at the forefront of everything you do,” Murphy said. “We launched this survey in 2013 because, instead of guessing why people were not taking action, we wanted to ask participants why they aren’t doing what they need to do, and now we have to do something with this information.”

While the situation overall isn’t positive, “there have been some signs of improvement on the road to retirement readiness,” he said. Seventy-nine percent said their financial stress has increased over the past three years—but 22% said it has decreased. “It is improving, but it is not gone,” Murphy said. “Retirement is still people’s number one priority. People need a nudge, through automatic enrollment and escalation, but we also need to provide advice for the big picture, either with robo advisers or in person.”

Fifty-four percent said their personal financial situation is better than two years ago. In 2014, 66% felt financial stress, and in 2016, that ticked down to 63%. In 2014, 69% said their financial stress was affecting them physically and/or psychologically, but this year, that’s declined to 59%, Murphy said.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

NEXT: Financial stress among various demographic groups

While 63% of people, on average, feel financial stress, for people who are divorced or widowed, as well as Millennials, that rises to 73%, Murphy said. Sixty-seven percent of women and single people feel financial stress. Seventy-three percent of lower-income feel this type of stress. “Only 55% of Baby Boomers feel financial stress—but their average retirement account balance is $140,000, so I would call them blindly happy,” Murphy said.

The potential elimination of Social Security is another financial worry people have. In 2014, 59% were troubled by this, and this year, it’s 75%. Asked what their most stressful financial decisions are, in 2014, people said budgeting; this year, that’s up to 51%. That is followed by choosing the right health care plan (31% in 2014 and 48% in 2016).

Asked what their financial priorities are, 95% said saving for retirement, followed by: saving for emergencies (92%), paying down debt (88%), preparing for health care expenses and long-term care in retirement (84%), and saving for a child’s education (84%).

Fifty-two percent said their savings are  behind, 39% expect to retire later than they had planned, Murphy noted.

The big question, he continued, is to help people allay these financial concerns—because while people are aware of what they should be doing, few take the actual steps. Eighty-two percent of people know they should save enough money to cover basic expenses in retirement, but only 16% actually do, he said. Seventy-four percent know they should set financial goals, but only 22% do; 70% would like to pay down debt, but only 17% are doing this; and 64% think they should learn to live on less, but only 17% are trying to do this.

It is the critical job of retirement plan advisers to “close the execution gap through plan design—through automatic enrollment, automatic enrollment into the age 50+ catch up provision, automatically sweeping existing employees not in the plan into the plan, automatically enrolling them into Roth 401(k)s, automatically enrolling them into an emergency fund, and using a ‘mega back door into the Roth,’ i.e. putting in after-tax month into the plan and converting it to a Roth at the end of the year,” Murphy said.

Consider this, he said: Ninety-two percent of Americans know they need emergency savings—but 62% have less than $1,000 in savings, and 49% have no savings at all. The work of an adviser to improve all of these variables has never been as important as it is today, Murphy said.

Client Service September 14, 2016

PANC 2016: Fiduciary Rule Aftermath for Non-RIAs

There are many anticipated avenues of disruption associated with the DOL fiduciary rule, but clearly the most direct influence will be felt at the point of sale of financial products used in ERISA plans. 
Reported by

Expert panelists at the 2016 PLANADVISER National Conference offered up some important food for thought regarding nonregistered investment advisers (non-RIAs) serving the qualified retirement plan arena at a time of major regulatory change.

It won’t be news to readers of PLANADVISER that a new fiduciary standard will be enforced by the Department of Labor (DOL) starting in April of next year—a standard that will apply much more broadly and strictly than the one enforced under current law. Today there is still much room for advisers to deliver products to tax-qualified retirement plans in a nonfiduciary capacity, observed panelist David Kaleda, a principal with Groom Law Group Chartered. However, this space is going to collapse very quickly under the new fiduciary rule, which will designate essentially anyone offering advice for a fee to retirement plans a full-fledged fiduciary.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

“At the end of the day, the big focus is on the sale of investment products to ERISA [Employee Retirement Income Security Act] plans,” Kaleda suggested, “particularly as it pertains to the commission-based sales forces, or non-RIAs. The DOL is very clear that it sees no distinction between selling products to investors and providing investment advice. It doesn’t think that investors grasp the difference, and so it’s doing away with it.”

Commission-based sales forces pushing products out to the ERISA market, if they want to continue working in this capacity, will have to find ways to leverage the best-interest contract exemption, known as the “BIC” or “BICE,” Kaleda predicted. This won’t be easy, but it might not be as hard as some predict, either.

“The BIC is the way of the DOL providing an avenue to get paid per transaction in a much more controlled way that still agrees with the spirit of the new fiduciary rule,” Kaleda said. “Again, it is still possible to make it work with transaction-based comp. There will be a lot of use of the BIC. There is a lot of doom and gloom out there, but in my opinion it is workable.”

Panelist Irene Scalfani, managing director for firm relations at Principal Financial Group, agreed with that assessment, highlighting that RIAs and non-RIAs alike are still engaged in the heavy lifting of interpreting the rulemaking and applying its requirement to their unique businesses.

“I am not exaggerating when I say we’ve got a team of 200 people focused on digesting all the different aspects of the regulation,” Scalfani observed. “And it will continue to be an ongoing thing for the next several months. Even if you are a firm that feels you have all the necessary processes in place today to comply with the new rule, reporting changes at the very least will be in store for everyone, and more likely than not there will have to be real changes and adjustments to compensation.”

NEXT: Making It Work 

John Moody, another esteemed panelist, who serves as president of Matrix Financial Solutions, agreed with these points, suggesting in no uncertain terms that advisers who are not looking at this new fiduciary rule as an opportunity should start packing it in now.

“There is no doubt that this is daunting for non-RIA advisers,” Moody said. “We get it. We are a shop that allows brokers to collect 12(b)1 fees directly from mutual funds. I’ll be frank, it’s hard to picture how we are going to ensure level compensation in our environment, so we’re having to engage with all of our partners and have really deep conversations around how to adjust. It’s dramatic change in terms of how we are thinking about levelizing compensation.”

The panelists all speculated that some advisories will look to change their DNA, to become flat-fee-only firms. As Kaleda put it, “You need to figure out how much of your business is individual retirement accounts [IRAs], how much is in 401(k), how much in HSAs [health savings accounts], or any other qualified account structures that could be impacted. Then you analyze the structure of the compensation. Talk to your supervising firm, asking, ‘What direction are we going to go?’ It might not have all the answers right now, but it’s having the conversations internally. You can contribute to this.”

Many firms engaged in this internal conversation are looking to go fee-only, but not every firm, Moody said. Some are working toward reforming their platform structures to ensure compliance, and others are putting more levelized product inside their platforms.

“It will be largely on the supervising broker to construct these policies and procedures around the new fiduciary rule,” Scalfani and the others concluded. “But you as the individual adviser should expect to keep additional records and do potentially much more monitoring. It’s going to change the way you do things every day.” 

«