Addressing Changing Attitudes Toward Retirement Planning

Today’s savers are preparing for retirement differently from their parents and grandparents, Nationwide finds.

Close to half (47%) of financial advisers indicate that their clients are embracing novel retirement strategies, like working during retirement, that diverge considerably from the approaches of previous generations, according to Nationwide’s ninth annual “Advisor Authority” survey, powered by the Nationwide Retirement Institute.

To shield client assets from market volatility, advisers are implementing various tactics, including:

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  • 79% using annuities;
  • 77% employing diversification with non-correlated assets; and
  • 58% incorporating liquid alternatives such as mutual bonds or ETFs.

The findings also show that advisers have observed their clients adopting unconventional methods, sometimes risky, to fulfill financial obligations during retirement.

Among advisers, 34% noted that clients are increasingly tapping into retirement accounts to meet these commitments. Additionally, nearly a quarter, 23%, of financial advisers reported clients liquidating assets, while 16% mentioned clients choosing to reside with adult children.

Evolving Industry

Nate Moody, partner and retirement plan adviser at Lebel & Harrison, sees the transformation in retirement approach less as a generational shift and more as a natural evolution based on changing consumer preferences, recent legislation and technological innovation.

“With an increased focus on fees, many individuals are finding their workplace retirement plan offers a much lower investing price point than rolling their assets over to an individual retirement account and hiring a financial adviser,” he says.

He added that legislation like the Setting Every Community Up for Retirement Enhancement Act of 2019 has opened the door to allow for in-plan annuity options to help individuals address the “decumulation” phase of retirement. Additionally, technological innovation reduces the friction historically associated with taking periodic distributions from a workplace plan and assists with establishing a sustainable withdrawal strategy in retirement.

“Functionally speaking, you are seeing workplace defined contribution retirement plans adding many of the features of the ‘old’ defined benefit plans, albeit funded primarily with employee dollars,” says Moody.

Apprehensive Investors

Meanwhile, inflation and other financial stressors may be playing a role in clients shifting retirement saving tactics, according to Nationwide.

Amid growing investor apprehensions, financial advisers are offering strategic solutions to prepare clients for retirement. Almost half of advisers (48%) indicate that the escalating expenses of daily life have prompted their clients to reconsider or recalibrate their retirement planning approaches.

“It’s clear that having a trusted adviser makes a difference when it comes to feeling confident about living comfortably in retirement,” Rona Guymon, senior vice president of Nationwide Annuity Distribution, said in a statement. “Advisers and financial professionals should seize this opportunity to engage with their clients to reinforce the importance of sticking to their long-term plan.”

The research was conducted online within the U.S. by The Harris Poll on behalf of Nationwide from January 8 to 23, among 518 advisers and financial professionals and 2,346 investors.

Correction: Fixes misspelled name.

9 Insurance Trade Groups File Suit Against DOL’s New Fiduciary Proposal

The firms filed a suit in Texas court seeking to undue the Retirement Security Rule aiming to rework the definition of what constitutes fiduciary advice for retirement investing.

The Department of Labor went into the Memorial Day weekend with a fresh lawsuit seeking to undue its Retirement Security Rule filed by nine insurance trade associations.

The associations filed the suit, American Council of Life Insurers et al. vs. U.S. Department of Labor, in the U.S. District Court for the Northern District of Texas, which is within the jurisdiction of the Fifth Circuit Court of Appeals. The associations cited the Fifth Circuit in the complaint because several years ago the court overturned a prior rule DOL intended to change the definition of what it means to give fiduciary advice for retirement investments.

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A DOL official as recently as Wednesday said the new fiduciary proposal took the 5th Circuit ruling into consideration and the department is comfortable that it avoids the prior legal perils.

The insurance industry has fought back hard against the Retirement Security Proposal, which would in part bring recommendations for retirement income annuities under the regulatory framework of the Employee Retirement Income Security Act. The latest rule, a final version of which was published in April, also brings individual retirement investment rollover advice and retirement plan advisement for small plan sponsors under that fiduciary umbrella.

The insurance organizations have argued that the added fiduciary obligations are unnecessary, as annuity sales are already regulated by many states, and investment advice is generally guided by the Security and Exchange Commission’s Regulation Best Interest rules. More broadly, the firms have argued that the fiduciary obligations would be costly, restrictive, and ultimately limit retirement advice to people with fewer assets who cannot afford long-term financial advisers.

The organizations that together filed the lawsuit were: the American Council of Life Insurers, National Association of Insurance and Financial Advisors, NAIFA-Texas, NAIFA-Dallas, NAIFA-Fort Worth, NAIFA-POET, Finseca, Insured Retirement Institute, and National Association for Fixed Annuities.

“The legal action we are taking today comes after careful deliberation on what is in the best interest of the retirement savers we serve,” the firms wrote in a combined statement. “Our filing makes a convincing case that the DOL’s fiduciary-only regulation suffers from the same legal defects as the DOL’s failed 2016 rule. It exceeds the DOL’s authority under federal law, is arbitrary and capricious, and is unconstitutional. Moreover, it ignores recently enhanced federal and state standards for financial professionals who work with retirement savers.”

The insurers argue that the regulation will “block retirement savers” from access to annuities when “the lifetime income these products provide is needed more than ever before.”

The firms go on to point out that, since 2020, 45 states have adopted revised regulation around selling annuities via a project of the National Association of Insurance Commissioners.

The lawsuit is the second against the DOL’s rule. The Federation of Americans for Consumer Choice, an advocacy group for insurance agents, filed a lawsuit against the rule on May 2, then on Tuesday requested a preliminary injunction to pause implementation amid the litigation.

In comments made Wednesday to the American Bar Association, Timothy Hauser, deputy assistant secretary for program operations of the DOL’s Employee Benefits Security Administration, said that the new rule is different from the previous one in a number of ways. That includes not covering “any direct recommendation” to a retail investor, but limiting fiduciary obligation to advisers that hold themselves out as “providing individualized advice, based on the best interests of the retirement investor.”

He gave the example of a commercial showing happy retirees on a beach by an investment adviser, only to “have a footnote in small print at the end” that they are not acting as a fiduciary with only the best interests of the client in mind.

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