Data & Research September 28, 2015

Millennials Must Understand Both Sides of Balance Sheet

Many Millennial workers show a healthy focus on paying down debt—student debt especially—but their actions reveal little appreciation for opportunities on both sides of the balance sheet. 
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Cathy Weatherford is president and CEO of the Insured Retirement Institute (IRI), and she says she is especially qualified to discuss trends taking shape among Millennial investors.

“I have got three Millennial girls at home,” she said during a recent webcast hosted by IRI and the Center for Generational Kinetics (CGK). “So I’m deeply entrenched and personally involved in all these trends we’re talking about today.”

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The webcast was called to highlight research results from a joint IRI/CGK survey fielded earlier this year, focusing squarely on Millennials and their developing habits at work and in the investing marketplace. As Weatherford explained, until about five years ago, Baby Boomers “were still the big research focus for us” and for the retirement planning industry in general, but around that time the Millennial generation actually overtook Boomers in terms of sheer size.

Turning the focus to Millennials quickly helped IRI debunk some myths, Weatherford noted, not least among them that Millennials “are not thinking about retirement or about their careers and long-term future,” Weatherford said.

“In a few words they are very closely engaged with the retirement planning effort, especially those who have been in the workforce a few years,” she said. “At the same time, it confirms what many have believed, that Millennials are already falling behind what we expect they’ll need to do to prepare for retirement. Bottom line, Millennials will need to do more than their own parents if they want to have a financially secure retirement.”

Among the large sample of Millennials survey recently by IRI/CGK, more than three in four (77%) are focused “first and foremost on cutting their debt.” This is a healthy stat viewed in isolation, researchers explained, but the problem arises from the fact that a similar number say “cutting debt today” is also their current approach for improving their retirement outlook. 

According to the IRI, Millennials need to ask themselves whether paying down debt at the expense of making investments is the most productive use of the wealth they have been able to generate so far. Often it is not, Weatherford said, because student loans generally have manageable interest rates and sensible time horizons (see “Linking Student Debt and Retirement Savings”). 

NEXT: Millennial strategies taking shape 

Weatherford explains one of the keys to ensuring Millennials will have successful retirements “is getting them educated about both sides of the balance sheet.”

“Millennials, in our data and in other reports, don’t in general have great financial knowledge,” Weatherford said. “What we can say without a doubt is that there’s a big gap between what they need to know and what they do know, and there’s still another gap between what people know and what they do.”

Here’s a good example: When it comes to expenditures in retirement, fully 70% of Millennials think they will spend less than $36,000 per year. This is already 30% less than the current national average, $46,757, for those aged 65 to 74, Weatherford said, and is likely far below what Americans will be spending annually in retirement by 2050 or 2060.

This all makes Millennials a great target market for professional financial advice, she noted. According to IRI, a pretty strong majority (62%) of Millennials would like an adviser to walk them through every step of the retirement planning process, and 87% said it is important that an adviser be willing to meet them in person. About one in five (19%) Millennials said they are likely to use a robo-adviser at some point.

The research also asked Millennials to pick among a list of celebrity advisers. Interestingly, about half of Millennials (48%), would pick Warren Buffett to be their financial adviser, and 32% would choose Oprah Winfrey. By contrast, 77% of Boomers selected Buffett and 15% picked Winfrey.

Weatherford said this shows Millennials want an adviser who can help set life goals and put retirement planning into context—not simply a stock picker who can potentially improve returns.

Concluding the webcast, Weatherford and other experts said automatic enrollment has been a major boon to Millennials’ retirement planning effort, so she urged plan sponsors and advisers to double down on innovative plan design features that leverage inertia. 

Deals & People September 25, 2015

Inside Perspective on Transamerica-Mercer Deal

“Scale is a very important part of the economics that drive this business,” says Kent Callahan, president and CEO of Transamerica’s Investments and Retirement Division. He told PLANADVISER the announcement of a deal to take on Mercer’s DC administration business is all about scale and superior service.
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A deal announced Friday to transition Mercer’s defined contribution (DC) plan administration business to Transamerica’s retirement platform will drive the migration of more than 900,000 participants and adds further momentum to a streak of recordkeeper consolidations.

Kent Callahan, president and CEO of Transamerica’s Investments and Retirement Division, agrees that major industry consolidations show little sign of slowing heading into the final quarter of 2015. Speaking with PLANADVISER shortly after Transamerica parent company Aegon announced an agreement with Mercer HR Services to acquire Mercer’s U.S. defined contribution administration book of business, Callahan said the next three to five years are going to see merger and acquisition activity in the retirement plan services space “shift from second to fifth gear.”

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Under the terms of the deal, beyond taking on 917,000 additional participants currently serviced by Mercer, Transamerica will become “the preferred defined contribution recordkeeping provider for Mercer’s total benefit outsourcing and total retirement outsourcing clients.”

That portion of Mercer’s business is not changing hands, explained Sandy McCarthy, Mercer U.S. benefits administration leader. This means the relationship management team at Mercer is “still going to play the significant role in leading the total benefit outsourcing [TBO] and total retirement outsourcing [TRO] relationships, and in connecting them to the DC capabilities at Transamerica.”

“In addition to Transamerica taking over our DC administration book, they will become the preferred DC recordkeeping provider relationship within our TRO and TBO programs,” McCarthy told PLANADVISER. “We see both sides of the agreement playing out quite nicely. We will continue to invest in our defined benefit [DB] administration and in our health benefit administration business, while Transamerica will continue its own fantastic investment on the DC admin side.”

Both McCarthy and Callahan said there will be a lot of opportunity for integration between Mercer TBO and TRO programs and the Transamerica retirement platform. They expect the deal to close by the start of 2016, and that Transamerica will offer employment to the Mercer staffers servicing the transitioning book of business. From the client perspective, rollout will begin when the deal closes and will be carefully executed, Callahan said.

NEXT: What clients can expect 

As plans come onto the Transamerica platform, Callahan said they will be introduced to new phone-based retirement counselors, advanced mobile account management capabilities, and the company’s individualized retirement planning system, called OnTrack.

“We recognize that clients within this Mercer business have a decision to make,” Callahan noted. “We are fully confident that after having a chance to tell our story and demonstrate our capabilities, we will keep a great deal of these plans and participants. We hope to keep all of them.”

Callahan noted the firm will have “no issue taking on this large group of participants quickly and seamlessly.”

“Another point to make is that, we have had very strong growth in new sales in the last 20 months, at 14% annualized, so it demonstrates that we are able to bring on business right now at a rapid rate while maintaining very high quality,” he suggested. “We have demonstrated that already, no question.”

Importantly, current and future clients of Mercer’s TRO and TBO businesses will still have the opportunity to work with other recordkeeping providers, should they so choose. According to Callahan, being the preferred DC administration provider for Mercer TBO and TRO “simply means Mercer will hold up Transamerica and say to clients, ‘We have integrated this system and we really stand by Transamerica on this, so they are likely to be a good choice for you as our strategic partner.’ ”

Callahan also pointed to expanded opportunity for Transamerica in the individual retirement account (IRA) services domain.

“We’re going to be able to help these 917,000 participants get even better prepared for retirement through the additional tools and services we can bring to the table,” he explained. “This includes the personal retirement solutions model and the rollover IRA retirement planning counselors program we offer. It’s another phone-based team that we believe has done an unbelievably good job of improving our clients’ retirement readiness in that market.”

Callahan suggested Transamerica is “already very well positioned for the post-fiduciary redefinition environment,” from the IRA rollover perspective. He said the firm is fully prepared for final rule language to emerge by March or April 2016, and for the rules to be effective by the end of 2016. “That’s our timeline and we’ll be operational whenever we need to be.” 

“It’s important to note that our platform is built on open architecture and so is Mercer’s platform, so we feel well prepared,” Callahan concluded. “And we have a tremendous IRA team that will continue to serve clients very effectively in the post-rule change environment. We actually think the DOL regulations could present a competitive advantage for Transamerica and Mercer as well.” 

In an internal Mercer client memo obtained by PLANADVISER, the firm presents the deal to clients as “a strategic alliance where Transamerica Retirement Solutions LLC will acquire our DC book of business and also become our preferred DC administration provider for our TBO and TRO offerings.”

Mercer tells clients, in the near term, “we anticipate no changes to teams, the participant experience or the way we administer plans … Once the transaction is closed we will work with clients and Transamerica to develop conversion plans that ensure a smooth process.”

Mercer expects client conversions to be completed within 24 months, and because it anticipates clients “will continue to work with the same teams out of the same location they have today,” the firm says it is confident that the services provided by Transamerica will be consistent with Mercer’s.

The motivation for offloading the DC administration business is framed this way: “We’ve delivered top-tier DC administration services for over 20 years. However, after an extensive evaluation of the retirement market and our existing DC administration services, we recognized that the marketplace has evolved to favor firms that offer full-service DC asset management and plan administration solutions. After careful internal and external analysis, we have decided to form a strategic alliance with … one of the fastest growing retirement plan recordkeeping firms in the U.S.”

Mercer cites redoubled commitment to offering integrated total benefits for clients and prospects.

“[This deal] will enable us to reinvest in our defined benefit and health benefit businesses, thereby enabling growth and strengthening our overall client offering,” the memo explains. “For our TBO and TRO clients, the online DC administration experience and resources available through Transamerica will be embedded into Mercer’s participant website, creating a seamless user experience.”

For DC-only institutional clients, mid-market and Taft-Hartley clients, once they convert to Transamerica’s platform, their participants will go directly to Transamerica’s participant portal and call center to manage their plan, the memo says. 

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