In Practice January 10, 2018

Advisers Are Apparently Ignoring Cybersecurity Threats

Only 27% of RIAs surveyed by TD Ameritrade suggest that “cybersecurity issues,” even when very broadly defined, are likely to impact client portfolios during 2018; experts suggest this is just wishful thinking.

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TD Ameritrade this week provided a fresh cut of data from its 2018 RIA Sentiment Survey, in which independent registered investment advisers (RIAs) look ahead to 2018.

Likely surprising to few, the GOP tax cut plan is the top item expected to impact client sentiments and portfolios in the next year, say independent registered investment advisers (RIAs) polled by TD Ameritrade. Survey results suggest advisers are also “closely watching earnings and interest rates.”

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The strong majority (70%) of RIAs expect to see economic growth in the U.S. and abroad this year, while roughly half are bullish on equities. According to the survey data, RIAs expect “financials, materials and industrials” to perform better in 2018, which is somewhat at odds with what various asset managers have projected.

“Their own optimism aside, RIAs say that money in retirement, taxes and estate planning also top clients’ biggest concerns,” TD Ameritrade reports. “To keep up 2017’s momentum, RIAs will look to marketing, not merger and acquisition activity.”

More than three-quarters of RIAs say firm assets will rise in 2018; nearly half expect assets to grow faster than 2017. That will be a pretty impressive feat, as RIAs ended 2017 with revenue growth averaging 15%, TD Ameritrade finds, and with full-service brokerage firms supplying a third of their new clients.

“Though M&A is not in the cards for most, RIAs who are considering it want to acquire or add to their firms, versus merge or sell. … RIAs say they will spend more on marketing in 2018, as they consider it the most important way to drive growth,” the research shows.

Turning to client satisfaction, RIAs say tech investments in 2018 will focus on improving client experience, a top strategic priority for many RIAs. “Regulations and lack of client awareness” are seen as the biggest threats to RIA growth, and only 1% are “extremely concerned” about the threat of robo-advisers.

Lack of concern on cybersecurity

One finding that could be of note for PLANADVISER readers shows only 27% of RIAs surveyed by TD Ameritrade suggest that “cybersecurity issues,” even when very broadly defined, are likely to impact client portfolios during 2018. This lack of concern and action on cybersecurity challenges probably represents wishful thinking and potentially dangerous complacency on the part of RIAs, attorneys and other experts have warned.  

Indeed, on September 25, 2017, the Division of Enforcement at the Securities and Exchange Commission (SEC) announced the creation of a new cybersecurity unit. As pointed out by David Kaleda, principal in the fiduciary responsibility practice group at Groom Law Group, in Washington, D.C., the cyber unit is explicitly tasked with addressing concerns raised by the increasing use of technology by investors and advisers, as well as the growing risk of general market manipulation and other investor harm.

“The cyber unit will comprise SEC staff with expertise and experience in cyber issues,” he confirms. “Clearly, the creation of the dedicated unit signals that the SEC has a growing appreciation of the potential risks associated with cyber issues. Its concerns rightly include the use of technology to gain an unlawful market advantage, e.g., hacking to access material, nonpublic information, hacking of accounts in order to conduct manipulative trading, and disseminating false information through electronic publication; the failure by registrants to adequately secure customer data and ensure system integrity; and the failure by a public company to disclose, or adequately disclose, cybersecurity incidents that occur at the company.”

Advisers may just be surprised by how much they find themselves talking about and responding to cybersecurity issues during 2018, given the low concern measured on this point by TD Ameritrade.  

Full survey results can be downloaded here.

Data & Research January 9, 2018

Workers Look for All Aspects of Financial Education

Latest studies find workers and employees share distinct disconnects with what type of financial education is needed. 

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Despite continuous discussions on spiking participant education strategies across the retirement industry, two reports from Alight Solutions reveal a division between what plan sponsors and employees believe are financial needs.

The 2017 Financial Mindset Study and the 2018 Hot Topics in Retirement & Financial Wellbeing reports find distinctions with what workers and employers believe are integral in financial education, and what both groups consider vital past the spectrum of retirement savings and insurance services.

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According to the surveys, employees across the board say education on a variety of financial matters is needed, rather than just the limited amount of topics typically offered from employers. Some of these issues included how to obtain life insurance, with 81% of employees voting for more education compared to 68% of employers; and how to obtain disability insurance (84% of workers along with 71% of plan sponsors). Less of a disconnect, employees and employers reached a closer match when considering the need for retirement savings education (88% of employees, compared to 84% of employers).

Outside the land of retirement savings and insurance services, the two groups showed even higher disconnects—especially in consideration with saving for children’s education, student loan finances and setting aside funds for short-term needs. Forty-seven percent of employees want to learn more about saving for a child’s education, while only 24% of plan sponsors believe that help would be fundamental. Also, considering the rising number of student loans and the financial obligations that follow, 46% of employees want more education about paying off or refinancing student loans, yet according to the survey, only 18% of employers understand this topic as a necessity. On education for existing finances and saving for short-term matters, 45% of workers indicated this as a necessity, but just 18% of plan sponsors voted the same.

Other figures show higher numbers of employees voting for more information on a topic, with the number of employers trailing behind significantly. Fifty percent of workers voted for education on obtaining identity protection services, compared to only 24% of employers; more employees (46%) say help with debt management is wanted, with 23% of plan sponsors believing so; 44% of workers want to know how to establish an emergency fund compared to 22% of employers; and 36% of employees would like education on creating or managing a budget, but just 19% of sponsors see its need, according to the surveys.

This isn’t the first time workers have criticized the variety of educational focuses, too. A MassMutual study in 2017 revealed 63% of survey respondents reported feeling “not very” or “not at all” financially secure. Fifty-two percent indicated they wish for employers to offer more educational resources on prioritizing finances, and 51% said they want their employer to do more than just provide retirement savings education.

This demand for more diverse education doesn’t boil down to one group of workers either. A 2017 Prudential survey found Asian-Americans place greater importance in providing college tuition for their children and taking care of their family, so tools and solutions for financial topics including college planning, caretaker planning and long-term care can be a better suit. Another Principal survey discovered specialized education targeted to Hispanics—including addressing cultural influences that may otherwise affect retirement savings and other topics— created better participation rates and awareness.

Says Rob Austin, head of Research at Alight. “While companies have been moving in the right direction by broadening the types of financial wellbeing tools and resources they provide, workers are still asking for more help. Offering help for every financial topic isn’t practical or necessary, but there is an opportunity for companies to determine the financial issues that are most relevant and pressing for their people and provide support in the areas that will be most meaningful.”

The Alight Solutions study can be downloaded from here.

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