Data & Research February 13, 2018

Retirement Planning More a Focus for Those Participating in Retirement Plans

An analysis from Pew Charitable Trusts shows a correlation between access to and participation in workplace-based retirement savings programs and more planning and saving.

Reported by

An analysis from Pew Charitable Trusts of data from a nationally representative internet survey of private-sector workers shows a correlation between access to and participation in workplace-based retirement savings programs and more planning and saving.

Overall, workers with access to an employer-sponsored retirement plan were much more likely to report that they had tried to figure out in the previous two years how much retirement income they would need (41%), compared to those with no access (16%). Past participation in a workplace savings program also is associated with a greater likelihood of retirement planning: among workers who do not currently participate, 30% of those who do not currently have access and 33% of those with access but who do not participate report planning for retirement. That’s about twice as high as those who never participated, regardless of access.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Even when accounting for other worker characteristics, such as education, race/ethnicity, gender, household income, unemployment history, and age, those who have never participated in employer-sponsored retirement plans are much less likely to plan for retirement than those who have participated or are currently participating. During a media call, John Scott, director, The Pew Charitable Trusts’ retirement savings project, said, “Most do not determine retirement savings need. A higher level of education is associated with greater planning and men tend to plan more than women—a disturbing finding given that women tend to live longer than men.”

A history of plan participation appears to play a role in the resources used. For example, those workers who have never taken part in an employer-sponsored plan are significantly less likely than those who currently do or have done so in the past to say they have used a financial professional or automated statements from financial providers. They also are much more likely to “guesstimate,” or make informal calculations. Moreover, 28% of those who have never participated in an employer-sponsored plan have only guesstimated, compared to 14% of workers who have ever taken part and 8 percent of those who currently participate.

Workers who have participated in a workplace plan use more rigorous tools to determine retirement income needs. For example, 58% of those who currently participate in a workplace retirement plan have used online tools or calculators to determine retirement income needs, as well as 46% of those who have ever participated in a workplace retirement plan. Thirty-nine percent of those currently participating in a workplace retirement plan have used a financial professional to determine retirement income needs, as well as 43% of those who have ever participated. Only 16% of those who have never participated in a workplace retirement plan have used a financial professional to calculate future income needs. “Getting these resources into workers’ hands will very likely result in an increase in their use,” Scott said.

Having any retirement savings does not mean that respondents actively contribute to such a plan. For example, a person might have contributed money or rolled over a prior retirement account to an IRA but is not currently making contributions. When asked, 38% of workers who have any savings but do not have access to an employer-sponsored plan said that they had not contributed in the past two years; 3% said they were not allowed to contribute.

Among those currently participating in employer- sponsored plans, only 8% did not contribute or had decreased their contributions, compared with 45% to 52% of all others regardless of current access or participation history.

Asking how workers would use a hypothetical $10,000 windfall can help reveal savings and spending priorities, Pew says. On average, those without access to a retirement plan would allocate $1,580 toward retirement, more than those with access to a plan who are not currently participating, possibly because they cannot save at work. Workers are more likely to use the hypothetical money to pay down debt or build liquid savings than to boost retirement savings, which suggests that these factors may be more pressing concerns for many workers.

“Paying down debt was the top response for all survey participants. Retirement savings should be viewed in the context of workers’ broader financial situation. Policymakers may consider combining retirement savings with help with other financial priorities,” Scott said.

The Pew Charitable Trusts survey report is online here.
Client Service February 13, 2018

Interest Doesn’t Always Bring Adoption of Robo-Adviser Tech

Since 2015, investors' interest in using digital advice platforms has increased modestly, far outpacing actual adoption, according to Cerulli; for clients of both traditional advisers and robo platforms, knowing disclosure information is easily available is often felt to be more important than reviewing it in depth.

Reported by

A new report published by Cerulli Associates examines the growth trajectory of the digital financial advice market that has occurred since 2015, finding there remains a clear inverse relationship between an investor’s age and their willingness to engage with purely digital financial advice platforms.

Scott Smith, director at Cerulli, notes that as of the third quarter of 2017, there is “greater openness to digital advice relationships, but a strongly negative correlation between age and interest remains.”

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

“Investors ages 30 to 39 exhibited the greatest enthusiasm about robo-advisers, with interest steadily declining among those ages 70 and older,” Smith explains. “When examining investors’ inclination to use these platforms from a wealth perspective, a slightly more nuanced result appears. While interest in lower wealth tiers was more muted, investors with more than $2 million of investable assets express substantial increases in their willingness to engage with digital providers.”

As one would expect, Cerulli has seen that higher-net-worth investors are more aggressive in adding to their total number of advisory relationships, including digital, as a form of provider diversification.

“When age and wealth cohorts are combined, fewer but potentially more profitable segments emerge,” Smith adds. “For example, more than one-quarter of investors over 70, with $2 million to $5 million in investable assets, would consider online only engagement. This tells us that instead of solely considering the emerging investor market, providers should consider incorporating digital platform features that address the concerns of those approaching, or in, retirement.”

Smith says the research further indicates that investors with a professed interest in online only engagement will often seek the advice of a traditional human adviser to round out their guidance needs. “There is an opportunity for advisers to maximize their addressable market and investor satisfaction by developing platforms that can seamlessly move between digital and human advice,” Smith says.

The report goes on to suggest that, when considering the design and layout of their online platforms, financial advice providers must be “particularly cognizant of both the overall preferences of their potential clients and, more specifically, the user experiences that each subset of investors is likely to encounter through its chosen engagement options.” 

Within both the online enthusiast and traditional advice client groups, Cerulli finds evidence of a clear desire for an adviser to provide transparency in interactions. This is the most important satisfaction factor cited by 72% of traditionalists and 54% of online enthusiasts.

“This issue presents something of a conundrum for many providers,” Cerulli notes. “While low fees have been a focal point of many digital platforms, most investors lack a clear understanding of both the variety and amount of fees they may be subject to within an advisory relationship. Instead of digging through a variety of disclosures, clients of traditional advisers are far more likely to rely on their advisers, whom they believe must put clients’ interests ahead of their own, to make judicious investment decisions.”

As Cerulli researchers lay out, this scenario “can severely undermine the marketing efforts of digital platforms seeking disgruntled investors, only to find a majority content with their current arrangements.” To address this concern, Cerulli finds traditional providers are adding “thorough online disclosure portals.”

“For their clients, knowing the information is easily available is likely to be more important than reviewing it in depth,” the research concludes.

These findings are taken from the first quarter 2018 issue of The Cerulli Edge – U.S. Retail Investor Edition. More information on obtaining Cerulli reports is available here.

«

 

You’ve reached your free article limit.

  You’re out of free articles!! 

Subscribe to a free PW newsletter - get free online access!

 Don’t leave before subscribing! 

 SUBSCRIBE & GET FREE ACCESS! 

If you’re a subscriber, please login.