Products October 18, 2016

Voya Institute to Look at Behavioral Finance and Retirement Savings Link

Voya Financial, Inc. launched its Voya Behavioral Finance Institute for Innovation, which is focused on gaining deeper insights into the behaviors and decisions of Americans regarding their financial and retirement planning activities.
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Voya Financial, Inc. launched its Voya Behavioral Finance Institute for Innovation.

The new research initiative is focused on gaining deeper insights into the behaviors and decisions of Americans regarding their financial and retirement planning activities. Through a series of pioneering studies, the Institute will test a number of novel concepts that could translate into large-scale solutions to help people save more and achieve better retirement outcomes. The Institute’s work will be differentiated by its ability to merge behavioral science with the speed and scale of the digital world.

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To create the Institute, Voya teamed up with renowned behavioral economist Shlomo Benartzi, professor and co-chair of the Behavioral Decision-Making Group at UCLA Anderson School of Management, who is serving as a senior academic adviser for Voya. Voya is also engaging several other leading academics, including professor John W. Payne from Duke University’s Fuqua School of Business. Rick Mason, senior adviser at Voya Financial, will help coordinate the efforts for the company. Research associated with the Institute will be conducted in laboratory, panel and field settings. The Institute also plans to collaborate with Voya’s employer clients and distributors to bring these concepts to life in a manner that best serves their plan participants.

The Institute will support Voya across all of its businesses. Among other things, research will examine how to improve outcomes in areas such as savings rates, participation in workplace plans, portfolio diversification, creating sufficient retirement income and preventing money from prematurely leaving retirement plans (when participants cash out their savings after changing jobs).

“We are pleased to embark on this new initiative that supports Voya’s broader commitment to helping individuals plan, invest and protect their savings so they can retire better,” says Alain Karaoglan, chief operating officer for Voya Financial. “As more Americans take on the responsibility to prepare for their retirement, we recognize the need to help them make the right choices. Our Institute will take a scientific approach that applies lessons learned from research, along with measurement and validation, to develop solutions that can lead to improved financial outcomes.”

NEXT: Behavior Finance Link to Retirement Savings

The field of behavioral finance, which applies psychological theories to finance, has offered valuable insights and solutions to help Americans achieve better outcomes, Voya notes. Groundbreaking areas of study have resulted in innovative retirement plan features and investment options—most notably auto-enrollment, auto-escalation and target-date funds.

"This body of research has produced significant advancements, and the financial services industry has recognized its outcomes and benefits," says Charlie Nelson, chief executive officer of retirement for Voya Financial. "We believe there is even greater opportunity today to improve savings rates with the data and insights available from phone and adviser interactions, as well as digital tools such as retirement plan websites, mobile devices and apps. Our goal is to be known by our clients and partners as a leader that advances this valuable research."

The Institute's first white paper, "Using Decision Styles to Improve Financial Outcomes – Why Every Plan Needs a Retirement Check-Up," written by Benartzi, examines the two primary styles that people use to make decisions. By analyzing these decision styles, data collected from the online activities of retirement plan participants can inform a sponsor about the overall "health" of its plan and, more importantly, the actions it could take to set participants on a more effective course.

"Planning for retirement is often treated as a one-time event, but the reality is that it's a long journey requiring adjustments and course corrections along the way," says Benartzi. "Plan sponsors must remember that even if employees are enrolled in a plan, they may still require check-ups to achieve a successful retirement. Research conducted with the Voya Behavioral Finance Institute for Innovation offers an opportunity to discover new solutions that can help people on their retirement journey."

For more information about Voya's Behavioral Finance Institute for Innovation and to view the findings from Benartzi's current white paper or future studies, visit www.Voya.com/behavioralfinance.

The Markets October 18, 2016

Millennials Increasingly Saving for Retirement in Mutual Funds

Among mutual fund–owning households, more households headed by Millennials than Baby Boomer households held their funds only through employer-sponsored retirement plans, the Investment Company Institute found.
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Millennials are increasingly saving for retirement through mutual funds, underscoring the role that workplace retirement plans can play as gateways to mutual fund investing, according to a study by the Investment Company Institute (ICI).

The survey found that mutual fund–owning households headed by Millennials made their first mutual fund purchases at an earlier age than Baby Boomer households. Furthermore, the firm found that among mutual fund–owning households, more households headed by Millennials (45%) than Baby Boomer households (34%) held their funds only through employer-sponsored retirement plans.

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Among mutual fund–owning households that purchased their first mutual fund in 2010 or later, 71% purchased the fund through a workplace retirement plan, compared with 56% of those that made their first purchase before 1990.

“Our 2016 household survey shows that savers across all generations continue to rely on mutual funds to meet their financial goals,” says Sarah Holden, ICI senior director of retirement and investor research. “Among the millions of households headed by Millennials, for example, more than one-third owned mutual funds and they have been buying mutual funds at a younger age than preceding generations. Millennials typically are engaged in mutual fund investing through their employers’ retirement plans, a popular entry point for mutual fund ownership.”

The ICI survey also revealed that each successive generation began mutual fund investing at an earlier age. The median age at which households headed by adult Millennials (born between 1981 and 1998) first purchased mutual funds was 23. The median age for first time mutual fund owners for households headed by a member of Generation X (born between 1965 and 1980) was 27, while Baby Boomers (born between 1946 and 1964) were in their thirties when they made their first mutual fund purchase.

NEXT: Baby Boomers Largest Group of Mutual Fund Owners

According to the survey, Baby Boomers account for the largest group of mutual fund owners. Nearly half of the more than 43 million U.S. households headed by a Baby Boomer owned mutual funds, and their mutual fund holdings accounted for half of total U.S. households’ mutual fund assets in mid-2016.  

More than 44% of U.S. households owned shares of U.S.-registered investment companies—including mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts—representing an estimated 56 million households and about 96 million investors. Mutual funds were the most common type of investment owned, with about 55 million U.S. households, or nearly 44%, owning mutual funds in mid-2016.

The ICI also reported that three times as many U.S. households owned mutual funds through tax-deferred accounts as owned mutual funds outside such accounts. Almost all mutual fund–owning households (92%) were focused on retirement saving as one of their financial goals.

The majority of U.S. mutual fund shareholders had moderate or lower household incomes and were in their peak earning and saving years, the survey found. Fifty-one percent of U.S. households owning mutual funds had incomes less than $100,000, and individuals between the ages of 35 and 64 headed 63% of mutual fund–owning households.

The survey also revealed a few key insights about mutual fund owners’ demographics including their high rate of Internet access at 92%, and the variation in their willingness to take financial risk over time and across age groups. 

These findings are from a survey published through two different studies “Ownership of Mutual Funds, Shareholder Sentiment, and Use ofthe Internet, 2016” and “Characteristics of Mutual Fund Investors, 2016.

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