Client Service June 12, 2019

Education Can Help ‘Savers’ Feel Confident Like ‘Investors’

Nearly all of those responding to a new Schwab survey say they would feel confident about making the right financial decisions with professional help, yet only half feel their current situation warrants professional advice.

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Schwab Retirement Plan Services published a new survey report that offers advisers a bird’s eye view into the various trends and topics that are top-of-mind for retirement plan participants.

Of particular interest to the advisory community, nearly all of those surveyed (95%) say they would feel confident in making the right financial decisions with professional help. On the other hand, just half of participants (52%) feel their situation actually warrants financial advice.

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According to Steve Anderson, president of Schwab Retirement Plan Services, the Americans surveyed seem to have a realistic target for retirement, but many likely aren’t on track to get where they want to go. Too many overlook the potential benefits of getting advice, he adds.

“It’s important for anyone with a 401(k) plan to understand that they’re already an investor, whether they realize it or not,” Anderson says. “Shifting your mindset from ‘saving for retirement’ towards ‘investing for retirement’ can help you to better understand that you are participating in the market when you contribute to a 401(k), and ultimately better help you reach your goals.”

About two-thirds of those surveyed say participating in a 401(k) plan was their first experience with investing, but when it comes to using a 401(k), 64% view themselves as savers rather than investors. The survey also shows that outside of a 401(k), participants are more likely to use a savings account to prepare for retirement than any type of investment account.

Survey participants named some of the specific areas where they would like help, including determining at what age they can afford to retire (41%); calculating how much they need to save for retirement (40%); receiving specific advice on how to invest their 401(k) (37%); and figuring out what their expenses will be in retirement (35%).

Catherine Golladay, chief operating officer, observes that many of those surveyed seem to be taking a “set it and forget it” approach to their 401(k), with less than half saying they have increased their contribution percentage in the past two years. And when asked how they decided how much to contribute to their plan initially, 55% say they chose a percentage they were comfortable with, 36% contributed as much as their employer matched and 8% were automatically enrolled at a default percentage chosen by their employer.

“Any effort to set aside money for the future is worthwhile. That said, money intended for retirement has far more growth potential if it’s invested through an IRA or health savings account, for example, than if it’s placed in a regular savings account,” Golladay says. “Having access to more investment education could help participants get more out of their investments, both inside and beyond their 401(k) accounts.”

Other survey results show many participants leverage and find value in web-based financial tools, with just over half (52%) saying they have used an online retirement calculator. Of those who have used one, 71% felt encouraged and wanted to learn more, and 61% took positive actions related to their finances, such as increasing their 401(k) contributions, changing their spending habits or accessing online advice.

“It’s so encouraging to see people using online resources to take their financial pulse, and even more encouraging that many are taking action. The next step would be talking with a financial professional, a service many people can access through their 401(k),” Golladay adds. “We believe everyone can benefit from professional financial advice, and by offering it at work, employers can help move their employees from saving to investing to true financial ownership.”

According to the survey, the vast majority of participants (87%) consider a 401(k) a must-have benefit. Only health insurance ranked higher (89%). The top obstacles participants face when trying to save for retirement are paying for unexpected expenses like home repairs (37%), paying off credit card debt (31%), and needing enough money for basic monthly bills (30%). Fourteen percent named paying off student loans as an obstacle.

In Practice June 11, 2019

Tackling the Industry’s Diversity and Inclusion Problem

Even though African Americans make up about 13% of the United States population, the U.S. Bureau of Labor Statistics reports this group accounts for only about 7.6% of financial services professionals.

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During a far-reaching discussion at the 2019 PLANSPONSOR National Conference in Washington, D.C., Jonathan McBride, managing director and global head of inclusion and diversity at BlackRock, admitted candidly that in a perfect world, his job wouldn’t exist.

“The only reason I can have a title like ‘global head of inclusion and diversity’ is because people still don’t believe that corporations, whether we’re talking about financial services companies or any other sector, can grow to be fully diverse and inclusive on their own,” McBride said. “My title is an acknowledgement that there is a problem with inclusion and diversity that must be tackled head-on.”

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The numbers bear this out, McBride said. Right now just 19% of financial advisers in the U.S. are women. When one considers the professional fields that intersect with the financial and retirement advisory space the problem is thrown into sharper relief; fully 52% of accountants are women and 32% of attorneys are women. At the same time, even though African Americans make up about 13% of the United States population, the U.S. Bureau of Labor Statistics reports this group accounts for only about 7.6% of financial services professionals.

McBride talked about his own background as a mix-raced man working in corporate America, noting that he has been thinking about diversity and cultural inclusion issues throughout his professional life. Notably, McBride worked for the Obama Administration, first serving as Deputy Director of Personnel and then later as the full Director of the White House Presidential Personnel Office.

In recent years, McBride said, the conversation about inclusion and diversity in the corporate office setting has slowly but surely grown to be more pressing and sophisticated. This has occurred for many reasons, he said, including the fact that Millennials—the most diverse generation in U.S. history and also the largest—now make up a sizable and growing portion of the workforce. He contrasted the current diversity discussion with work that was being done by financial services firms in the 90’s and early 2000’s.

“At that time, there was actually some short-lived success bringing people of color and more women into the financial services field,” McBride explained. “However, firms quickly proved to be pretty poor at retaining these people. A big reason why this occurred, and why the industry returned to a bad state from the diversity perspective, is that many firms did very little to make sure people felt like they belonged. They thought getting diverse candidates in the door would be enough.”

In 2019, McBride said, there is more of an understanding that people from different cultural backgrounds can and should have different expectations about the workplace. Importantly, there is a growing understanding that these differences in expectations represent an opportunity for employers rather than a burden.  

“Employers are starting to understand that they can’t just bring in diverse people and pretend everyone is exactly the same,” McBride said. “This is why you will hear more and more about the concept of ‘belonging’ in the workplace. This idea is based in the belief that homogeneity is not a strength, necessarily, and that supporting people with different outlooks and expectations will result in a stronger and more loyal workforce.”

McBride encouraged all employers, even those that are already diverse and inclusive, to think about how they can inspire “emotional ownership” among their employees.  

“The concept of emotional ownership is what sets a truly great company apart from a good company,” McBride said. “The CEOs and executives at great companies have figured out how to get employees to take their jobs personally. They empower people at all levels of the organization to feel like owners.”

On this point, McBride said that an employer’s attitude about paid time off and work-life balance is critically important.

“For some reason, what we are willing to do for our clients doesn’t always match up with what we are willing to do for our own employees,” McBride observed. “Many companies will do whatever it takes to make a loyal customer happy and to be flexible for them, but so many companies don’t give this same flexibly and understanding to their workers. This needs to change.”

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