Data & Research February 23, 2021

Women Face More Financial Challenges Due to COVID-19

Financial advisers can help them through a mix of offerings and communication.

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The COVID-19 pandemic has severely impacted retirement savings for women. A Nationwide study explains what women are looking for to get back on track. 

Nationwide’s “Advisor Authority” study found that among 297 women with investable assets of $100,000 or more, 72% believe the pandemic had a negative impact on their retirement savings. Women listed losses from the pandemic as their top financial concern last year, along with protecting assets, health care costs and longevity risk in retirement.

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Additionally, women were more likely to be interested in lifetime income options than men. Nearly six in 10 women (59%) said they would feel more secure if a portion of their portfolio was invested in an annuity to help protect against market risk. Fifty-five percent of women said they would feel more secure if a portion of their portfolio was invested in an annuity to help protect against outliving their savings. Women were also much more likely to use fixed indexed annuities (FIAs) rather than registered index linked annuities (RILAs).

“Historically, there has been a lot of discussion on income provisions in retirement plans that were not, up until the SECURE [Setting Every Community Up for Retirement Enhancement] Act, given the opportunity and guidance to construct options with portability,” says Lori Hall, director of strategic accounts at Nationwide Financial.

Women—and especially women of color—are more likely to have been laid off or furloughed during the COVID-19 crisis, according to a report from McKinsey & Co., which means generating sustainable retirement income has become even tougher. A 2020 Transamerica report found 52% of women said they have experienced one or more negative impacts to their employment as a result of the pandemic, including reduced work (24%), layoffs (16%), reduced salaries (13%), furloughs (13%) and/or early retirement (4%).

Others have been driven out of the workforce altogether due to a lack of flexibility in their work, housework and caregiving burdens, or burnout inflicted by the pandemic, according to the McKinsey research. Without working, many women miss out on key benefits including health care and access to financial wellness programs and retirement planning education.

Hall says the male-dominated demographic of the financial services industry may lead women to avoid seeking help from advisers. According to a 2020 Milliman study, just 23% of women are certified financial planner (CFP) holders.

Additionally, a different McKinsey & Co. report found female investors are less likely to seek financial help than their male counterparts, even though they are expected to control much of the $30 trillion in financial assets that Baby Boomers will possess by 2030. “As a woman, we’re not seeing people who looks like us or have the same mindset that we do, so it’s sort of a recipe for disaster,” Hall explains.

Women who do work with an adviser said the top reason they choose to work with a financial professional was to feel more confident in their financial future (35%). When markets are volatile, women with an adviser said the top benefit of working with a financial professional was that they were able to protect their assets against market risk (26%).

While more advisory boards are pushing to increase the number of female advisers, Hall urges financial advisers to connect with female investors. Understanding their personal journeys can be a great opportunity to engage on another level with them, bridge the financial services gap and understand their needs, she says.

She says investors will appreciate feeling like “my adviser can get me to where I need to be, but it’s not just by throwing numbers at me, it’s helping me understand the full implication of that.”

Compliance February 23, 2021

Natixis Investment Managers Target of ERISA Lawsuit

The firm is accused of self-dealing in its retirement plan in violation of the Employee Retirement Income Security Act, to the detriment of plan participants.

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A lawsuit has been filed against Natixis Investment Managers and its retirement committee, claiming they breached their fiduciary duties and engaged in unlawful self-dealing with respect to the company’s 401(k) Savings and Retirement Plan, in violation of the Employee Retirement Income Security Act (ERISA).

The complaint says the defendants failed to administer the plan in the best interest of participants and failed to employ a prudent process for managing the plan. Instead, it says, the defendants have managed the plan in a manner that benefits Natixis, the majority owner of several boutique mutual fund companies such as Oakmark, Vaughan Nelson, Loomis Sayles and AEW, at the participants’ expense. The plaintiff claims Natixis used the plan as an opportunity to promote its mutual fund business and maximize profits.

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“The favoritism shown to Natixis’s proprietary investments is evident through a simple comparison to other similarly sized retirement plans,” the complaint says. “Of the 3,618 defined contribution [DC] plans with at least $250 million in assets that are not affiliated with Natixis, 83% do not own a single Natixis-affiliated mutual fund. Among the 17% of plans that offer one or more investments affiliated with Natixis, Natixis Funds make up only 3% of their plan’s assets (and 0.1% of the total assets in defined contribution plans), with no plan putting over 14% of its assets in such a fund.” However, the complaint points out that Natixis’ own plan has more than 58% of its assets in Natixis funds.

The lawsuit claims that the proclivity for proprietary mutual funds has cost plan participants millions of dollars in excess fees. “For plans with $250 million to $500 million in assets, like the plan, the average asset-weighted total plan cost is 0.43%. In contrast, the plan’s total costs were roughly 50% higher, ranging from 0.60% to 0.66% throughout the statutory period,” it says.

The complaint contends the “excessive fees are entirely due to its concentration of proprietary funds, which, on average, cost seven times more than the plan’s nonproprietary options and accounted for 90% of the plan’s expenses.”

The defendants’ alleged favoritism toward Natixis funds is attributed to the retention of overpriced funds, as well as the retention of underperforming proprietary funds, according to the lawsuit. “Since 2016, Natixis has experienced over $15 billion in outflows from its suite of affiliated mutual funds. These substantial outflows are the result of prolonged underperformance across many of Natixis’ offerings, including those included in the plan. For example, the Oakmark Investor Fund and Oakmark Select Investor Fund, two of the plan’s largest proprietary holdings, trailed their self-selected benchmark (the S&P 500 index) by 2.82% and 7.99% per year over the five-year period ending 2020. While this severe underperformance has driven the marketplace to look elsewhere, defendants have retained these and other underperforming funds to stave off the consequences of an otherwise declining asset base,” the complaint states.

In addition, the lawsuit says the defendants’ preference for proprietary investments has harmed participants through the selection of new funds for the plan. “Despite losing favor both among similarly sized defined contribution plans and the general marketplace, defendants added two Natixis funds to the plan during the statutory period. A prudent and loyal review of the marketplace would have revealed multiple superior, lower cost investment options, and would not have led to the addition of these funds to the plan. Defendants selected these funds for the plan to allow Natixis to stem the consequences of further depletion of fund assets and advance defendants’ business interests,” the lawsuit says.

The suit asserts claims for breaches of the fiduciary duties of loyalty and prudence, as well as a claim for failure to monitor fiduciaries.

In a statement to PLANADVISER, Natixis said, “We believe the lawsuit is entirely without merit, and Natixis will defend itself vigorously against the claims. Our retirement savings plan offers employees a diverse lineup of investment options, which are rigorously reviewed to ensure reasonable fees and solid investment returns.”

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