Data & Research March 10, 2007

Affluent Couples Disagree on Decision-Maker Role

Who makes the financial decisions in affluent households? Depends on who you ask.
Reported by
Ask the men – and a full 56% of affluent men, those with investable assets in excess of $500,000 – say husbands make the financial decisions, though only one in five affluent women agree.
On the other hand, ask the women – and most affluent women (61%) say financial decision-making is a joint effort, according to a new Spectrem Perspective report, “Affluent Household Financial Decision- Making.’
“Affluent men and women aren’t seeing eye-to-eye about just who’s making the family’s financial decisions,’ notes Catherine S. McBreen, Managing Director of Spectrem Group, a strategic consulting firm. “Despite this disagreement, most affluent households have all their finances pooled. So regardless of who makes the decisions, the family’s money appears to be working together,” McBreen said. Spectrem’s data indicated that 61% of these households had all their finances combined, versus just 5% that keep them completely separated. The rest has some combination of pooled and separate finances.
The “Why’ Factor
McBreen notes that in most affluent households – and Spectrem says there are 8 million of them – the real determinant factor was age, not gender – with older couples exhibiting a tendency to defer to the male partner’s decisions in such matters. Those households, which were over age 65 also tended to be single-income households.
Nearly three-quarters say these financial decisions put little or no stress on their relationships – unlike numerous studies that have documented the impact of financial stress on relationships. Of course, these are affluent households, and there is surely less stress about foundation issues like paying bills, or making ends meet. McBreen suggests also that talking about these financial decisions is good for a relationship.
As for the implications for financial advisers, McBreen said that women want to be involved in these decisions – and feel that they should be. She also said that duality will take more work on the part of advisers in the future to retain these relationships – many of which are two-income households, and a significant number of which are small business owners.
More about the research is available online at http://www.farrellkramer.com/newsmaker/
Compliance March 10, 2007

IMHO: Price "Check"

The good news is, Congress is beginning to take a hard look at 401(k) fees.
Reported by
Unfortunately, that also happens to be the bad news.
They have a lot of company, of course. The Department of Labor has several initiatives currently under way, the Government Accountability Office (GAO) has called for more transparency (see GAO Urges Congress to Consider 401(k) Plan Fee Disclosure), and a number of lawsuits have been filed alleging all sorts of fiduciary malfeasance on the subject (a complaint filed against Cigna last week seemed to suggest that having investment management fees netted against the returns in a mutual fund was some kind of conspiracy – see
CIGNA Latest Target of 401(k) Fee Suit). In view of all that activity, last week’s hearing before the House Education and Labor Committee was relatively sanguine (see 401(k) Fee Hearings Begin on Capitol Hill).
Not that there weren’t points of contention (but not as many as one might have thought)—and even a couple of moments of tension between those offering testimony. Those seemed to be rare, however—after all, we appear to be at a period where everyone agrees that we need to provide participants and plan sponsors with better information about the fees assessed against their retirement plan balances.
Comparison Points
Speaking on behalf of the American Benefits Council last week, Robert Chambers presented an intriguing analogy, noting that an automaker like Toyota no longer made cars—they assembled them, outsourcing the preparation of the various components. He made the point that consumers don’t know—or particularly care—what Toyota paid the individual subcontractors, they’re buying the total product. While it was a compelling image of how today’s 401(k) is put together, the analogy falls apart in two key aspects, IMHO. First, most of us buy our own vehicles, and not from a menu selected by our employer. Second, when I go to buy a car, I may not know (or care) how much the manufacturer paid its subcontractors—but I surely know how much I am expected to pay for that car.
Over the past thirty years, participants, and to a lesser extent, plan sponsors, have been lulled into a false sense of security about the fees they pay for these accounts. I don’t know how many actually believe these accounts are free, but I would imagine that a significant number of participants would be amazed at how much they are paying each year (that doesn’t mean those fees are necessarily unreasonable, by the way).
Under Currents
You can hear that same concern just below the surface of comments made by the defenders of the status quo—in between phrases about how “fragile’ our current system is, and expressions of concern that participants might be so put-off by those revelations that they will eschew participation altogether. It’s not that I don’t understand what they are trying to say, but I wonder sometimes if they have any idea how that line of reasoning sounds. The implication is clear, even to those who aren’t yet convinced there is a problem: If people actually knew how much they were being charged….
The devil, of course, lies in the details—and concerns about how that information will be constructed and shared (and, trust me, it will be shared) were also just below the surface during the hearing last week. The concerns are twofold; that the mandated structure will be prohibitively difficult or costly to produce, or that the complexity of the information and/or the mandate will render a meaningful disclosure impossible (think prospectus). Indeed, IMHO, the scariest aspect of last week’s hearing was that Congress might feel compelled to roll up its sleeves and “help.’
I’m not altogether sure that the industry can be trusted to heal itself, but I do believe that a growing number are confident enough in the value provided—and their ability to explain it—to do the right thing, to place a visible price tag on those services. After all, if you don’t know how much you’re paying—it’s hard to appreciate how much it’s worth!

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