Data & Research April 28, 2008

Many Americans Don't Know Total Financial Picture

Although a majority of Americans are saving for their retirement, more than one-quarter are not, according to a new survey.
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An even larger number — more than one-third, or roughly 76 million adults — say they do not have any non-retirement savings, said the Consumer Financial Literacy Survey released today by the National Foundation for Credit Counseling (NFCC) and MSN Money.

A majority of the public does not have a sufficient emergency fund, defined as three to six months income saved to fall back on in rough times.

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Paying Bills

Many Americans struggle with mortgage payments and paying bills on time, the survey said. One in every 10 Americans with a mortgage, or roughly 10 million adults, report being late or missing a mortgage payment in the last year.

Millions have serious difficulties paying bills each month — most notably Generation Y. Only 59%, or roughly 23 million of the young adults in Generation Y (ages 18 to 29) pay their bills on time every month.

While a majority of the public reports that they pay their bills on time and do not have any debts in collections, roughly 15 million adults (7%), are either getting calls from collectors or seriously considering filing for bankruptcy.

Higher income households and older Americans are more likely to stay on top of their bills. Whites and Latinos are more likely to pay their bills on time and stay clear of collections than blacks, the survey said.

Keeping Track

Similar to the findings from 2007, only a minority of Americans say they keep close track of what they their typical monthly expenses are. Although a majority of the public has at least a somewhat good idea of where their money goes each month, nearly two in 10, or roughly 40 million adults, keep little or no track at all.

How closely Americans manage their money continues to not vary by gender, age, or income, the survey said.

Looking Ahead

Americans worry about future income growth. Only one-quarter of Americans expect their income to outpace inflation. More than half of all Americans believe their income will not keep pace with inflation or stay even; this worry is greatest among Americans in the Midwest at nearly 70%.

“If there were ever a time that Americans needed to embrace financial literacy, it is now, “said Susan C. Keating, president and CEO of the NFCC.”The NFCC is proud to make public the results of this survey in hopes that it will be a wake-up call to consumers. We live in a credit-dominated society and it is important that consumers avail themselves to the many opportunities to sharpen their financial skills and avoid any traps along the path to financial stability.”

To view the complete survey, go to www.nfcc.org


Data & Research April 28, 2008

Cerulli Analyzes Evolving Role of Consultants in DC Marketplace

Eighty percent of investment consultants expect to increase their defined contribution (DC) business in the wake of the pension fund crisis, according to Cerulli’s 2007 survey of investment consultants.
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That does not mean consultants are abandoning defined benefit (DB) plans. In fact, 60% of consultants surveyed feel the demise of the defined benefit pension plan has been overstated, and 60% said they are focused on retaining DB clients. But DC plans are increasingly becoming a focal point for consultants, according to The Cerulli Edge: Retirement Edition for 1Q 2008.

Cerulli estimates that between 20% and 25% of corporate DC plans greater than $10 million use an investment consultant, while between 35% and 40% of corporate DB plans greater than $10 million use a consultant, the report said.

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More Opportunity

One reason for more opportunity for consultants is the increasing structuring of DC plans to be more similar to DB plans, or “DB-ization.’ The report said DB-ization is “more intelligent investment manager due diligence, more sophisticated asset allocation, and more precise fund selection.’ DB-ization also refers to the paternalistic elements the DC plan is adopting, resulting from the Pension Protection Act and Department of Labor sanctioning auto-enrollment provisions and lifecycle funds as qualified default investment alternatives (QDIA).

Consultants also foresee more opportunities outside of the investment offering. For example, 70% of consultants said they expect increased business related to fee analysis, the report said.

Lost in Translation

While DC plans are undergoing DB-ization, not all DB strategies translate to the DC market. Consultants are an important bridge between DB and DC plans, the report noted.

Alpha/beta separation prevalent in DB plans, for instance, is hard to implement in DC plans. While 130/30 funds provide alpha/beta separation, Cerulli analysts believe the complexity of these funds will limit their widespread adoption in the DC market.

But long/short (such as 130/30) funds have potential coupled with exchange-traded funds (ETFs), which are expected to increase in the make-up of DC plans, the report said. According to Cerulli surveys, 80% of DC providers expect an increase in the usage of ETFs. “The coupling of these two funds within an embedded-advice structure could have the potential to deliver investment returns comparable or superior to mutual fund wrap programs at a decreased cost,’ the report said.

Traditional mutual funds are expected to have the least growth in the make-up of DC plans. Thirty percent of providers surveyed expect mutual funds to decrease.

More information can be found at www.cerulli.com

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