Data & Research May 21, 2013

Early Boomers Last to Retire Comfortably

Early Boomers, born between 1946 and 1955, may be the last group with enough savings to maintain financial security through their retirement, according to a study.
Reported by

The study, “Retirement Security Across Generations: Are Americans Prepared for Their Golden Years?,” from Pew Charitable Trusts, examined the savings behavior of five age groups before the Great Recession. It also explored how wealth losses during the recession affected each group’s retirement security by calculating replacement rates, or how much annual pre-retirement income households will have available to spend after retirement.

The research looked at the net worth (assets minus debts), financial net worth (financial assets alone), and home equity of five generations: Depression babies, war babies, early boomers, late Boomers, and Gen-Xers. The research showed that the youngest groups have less wealth than their older counterparts had at the same ages. Although all groups experienced wealth losses during the Great Recession, Gen-Xers took the hardest hit, losing almost half of their wealth. According to the findings, this lack of savings before the recession coupled with substantial losses in the downturn exposes younger groups to the real possibility of downward mobility in retirement.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

“Late Boomers and Generation-Xers lost significant amounts of wealth during the Great Recession, eroding their already low levels of assets,” said Erin Currier, director of Pew’s economic mobility project, who compiled the study. “As policymakers focus on Americans’ retirement security, particular consideration should be paid to how younger generations of workers can make up for these losses and prepare for the future.”

The study defined late Boomers as those born between 1956 and 1965, at the end of the post-war “baby boom.” Generation-Xers were born between 1966 and 1975.

The findings of the study, which examined wealth gains and losses from 1989 to 2010 for all five generational groups, include:

  • Early Boomers. Born between 1946 and 1955, this group was approaching retirement in better financial shape than those that came before them. Benefiting from both the dot-com boom and the housing bubble, early Boomers in their 50s and 60s had higher overall wealth, financial net worth, and home equity than Depression babies (born between 1926 and 1935) or war babies (born between 1936 and 1945) had at the same ages, putting them in a strong financial position for retirement.
  • Post-1955. Wealth accumulation and savings for those born after 1955 was more mixed. Gen-Xers (born between 1966 and 1975) had higher net worth than late Boomers (born between 1956 and 1965) when both were in their 30s and 40s, but neither group had as much wealth as early boomers had at the same age. Similarly, late boomers had more wealth than early boomers when both were in their 40s and 50s, but neither had as much as the war babies did.
  • Lagging Behind. Neither Gen-Xers nor late boomers were on track to exceed the financial net worth of those that immediately preceded them. In their 30s and 40s, Gen-Xers lagged behind late boomers by about $6,000 by this metric, and in their 40s and 50s, late boomers lagged behind early boomers by more than $5,000.
  • Asset-to-Debt Ratios. Baby Boomers and Gen-Xers have lower asset-to-debt ratios than older groups. Over the last two decades, Depression and war babies have been shedding debt, while Baby Boomers and Gen-Xers have been accumulating it. As of 2010, war babies’ asset levels were 27 times higher than their debts. In contrast, late Boomers’ assets were about four times higher than their debts, and Gen-Xers’ assets were about double their debts.
  • Gen-Xers Hit Hardest. While all generational groups had wealth losses in the Great Recession, Gen-Xers took the hardest hit. Both early boomers and late boomers were negatively affected by the recession at a critical point in their lives, losing 28% and 25%, respectively, of their median net worth. From 2007 to 2010, however, Gen-Xers lost nearly half (45%) of their wealth totals, an average of about $33,000, reducing their already low levels.
  • Replacement Rates. The analysis shows younger people will not have enough assets for a secure retirement. Early boomers may be the last to retire with enough savings and assets. Even after the recession, they had acquired enough savings and wealth to replace 70% to 80% of their preretirement income. Replacement rates have steadily declined across the generations studied, putting the youngest on shaky financial footing. At the median, Gen-Xers will have enough resources to replace only about half of their pre-retirement income and late boomers will replace about 60%.

The data used in the study was from the Survey of Consumer Finances, collected by the Federal Reserve Board, and the Panel Study of Income Dynamics, conducted by the University of Michigan.  The full study, as well as an overview, can be downloaded from here.

Compliance May 21, 2013

FINRA Delivers $7.5M Smack to LPL

On top of the fine from the Financial Industry Regulatory Authority (FINRA), LPL Financial LLC was ordered to establish a $1.5 million fund for customers affected by email system failures.
Reported by

 

According to FINRA, the reason for the fine was 35 separate, significant email system failures, which prevented LPL from accessing hundreds of millions of emails and reviewing tens of millions of other emails. Additionally, LPL made material misstatements to FINRA during its investigation of the firm’s email failures. LPL was also ordered to establish a $1.5 million fund to compensate brokerage customer claimants potentially affected by its failure to produce email.

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

As LPL rapidly expanded its business, FINRA said, the firm failed to devote sufficient resources to updating its email systems, which became increasingly complex and unwieldy to manage and monitor effectively. The firm was well aware of its email systems failures and the overwhelming complexity of its systems.

FINRA’s Department of Member Regulation and Department of Enforcement conducted an investigation and found that from 2007 to 2013, LPL’s email review and retention systems failed at least 35 times, leaving the firm unable to meet its obligations to capture email, supervise its representatives and respond to regulatory requests. Because of LPL’’s numerous deficiencies in retaining and surveilling emails, it failed to produce all requested email to certain federal and state regulators and FINRA, and also likely failed to produce all emails to certain private litigants and customers in arbitration proceedings, as required.

“This case sends a strong message to firms to make sure your business does not outgrow your compliance systems,” said Brad Bennett, executive vice president and chief of enforcement. “As LPL grew, it did not expand its compliance and technology infrastructure; and as a result, LPL failed in its responsibility to provide complete responses to regulatory and other requests for emails,” Bennett said. 

 

Some examples of the email failures include:

  • Over a four-year period, LPL failed to supervise 28 million “doing business as” (DBA) emails sent and received by thousands of representatives who were operating as independent contractors;
  • LPL failed to maintain access to hundreds of millions of emails during a transition to a less expensive email archive, and 80 million of those emails became corrupted;
  • For seven years, LPL failed to keep and review 3.5 million Bloomberg messages; and
  • LPL failed to archive emails sent to customers through third-party, email-based advertising platforms.

In addition, LPL made material misstatements to FINRA concerning its failure to supervise 28 million DBA emails. In a January 2012 letter to FINRA, LPL inaccurately stated that the issue had been discovered in June 2011 even though certain LPL personnel had information that would have uncovered the issue as early as 2008. Moreover, the letter stated that there weren't any “red flags” to suggest any issues with DBA email accounts when, in fact, there were numerous red flags related to the supervision of DBA emails that were known to many LPL employees.

FINRA also noted that LPL likely failed to provide emails to certain arbitration claimants and private litigants. LPL will notify eligible claimants by letter within 60 days from the date of the settlement, and the firm will deposit $1.5 million into a fund to pay customer claimants for its potential discovery failures. Customer claimants who brought arbitrations or litigations against LPL as of Jan. 1, 2007, and which were closed by Dec. 17, 2012, will receive, upon request, emails that the firm failed to provide them. Claimants will also have a choice of whether to accept a standard payment of $3,000 from LPL or have a fund administrator determine the amount, if any, that the claimant should receive depending on the particular facts and circumstances of that individual case. Maximum payment in cases decided by the fund administrator cannot exceed $20,000. If the total payments to claimants exceed $1.5 million, LPL will pay the additional amount.

In concluding this settlement, LPL neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck, which FINRA makes available for free online. Copies of this action and other disciplinary documents in FINRA’s are available at the Disciplinary Actions Online database.

«