Data & Research September 29, 2016

NAIFA Argues Fiduciary Rule May Limit Access to Retirement Advice

Nearly a quarter of advisers surveyed said the rule may cause them to lose all lower- and middle-income clients.
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Sixty-two percent of advisers believe the Department of Labor (DOL)’s fiduciary rule will damage their ability to serve clients, particularly those who are lower- or middle-income individuals, according to a new study.

The survey by the National Association of Insurance and Financial Advisors (NAIFA) examined the opinions of more than 1,667 of its members. The group found that more than 62% of advisers said the rule may push them to stop serving some or all of this clientele. Of those surveyed, 24.2% said they will lose all of their lower- and middle-income clients, while 41.3% said they will lose some.

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“The DOL rule has a strong potential to be a very bad deal for consumers who are not wealthy, but who are trying to do the right thing for their families by preparing for the future,” says NAIFA President-elect Paul Dougherty. “Lower- and middle-income workers want and would benefit from the help of a professional adviser as they prepare for retirement, but they may find that help hard to come by under the DOL rule.”

According to the NAIFA survey, 56.7% of respondents said the fiduciary rule will have an entirely negative effect on business. The anticipated points of difficulty vary, with 49.5% percent saying they expect their compliance costs to go up significantly and an additional 29% reporting that they believe costs will rise modestly; meanwhile, 11% say they are not sure what the practical impact may be. Only 3% said the fiduciary rule’s effects are likely to be entirely positive.

“NAIFA members are dedicated to serving lower- and middle-income clients,” says Dougherty. “But much of this is out of the advisors’ hands. Several financial institutions have already said they will no longer provide retirement investment products because of the DOL rule’s compliance costs. Others may follow suit or restrict their business to wealthier clients.”

The research comes in the midst of controversy surrounding the DOL’s fiduciary rule, which goes into effect in 2017. In June, NAIFA “reluctantly” filed a lawsuit asking the courts to declare the rule arbitrary and capricious. The insurance advocacy group added to the list of organizations in the wider financial services industry who have filed lawsuits challenging the legitimacy of the fiduciary rule. 

Client Service September 29, 2016

Certain Elements Important to Financial Wellness Programs

An analysis by Fidelity found financial wellness topics and needs important to certain groups of individuals.
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An analysis of individuals participating in Fidelity’s financial wellness program finds there are definitely some groups that have unique needs, and suggests ways plan advisers and sponsors can tailor their programs to address these concerns.

Meghan Murphy, director of thought leadership at Fidelity in Boston, tells PLANADVISER approximately 270,000 individuals have completed Fidelity’s financial wellness checkup, which shows “they want to tell their situation and get ideas for next steps.”

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Overall, most people (88%) are not confident about their financial future. More than half do not have healthy saving and spending habits or behaviors, and only about one-third (38%) have more than three months’ salary in an emergency fund. The top three topics that they are interested in: health savings accounts (HSAs), simple rules for saving and spending and saving for an emergency fund.

One group Fidelity pulled a snapshot of is what it calls “Unconfident Millennials.” Most of these individuals (89%) don’t feel confident or are wary of their current financial picture. About one-quarter (22%) are do-it-yourselfers, but they admit that they’re not confident in their investing and managing skills. Despite having the longest time horizon, more than one-quarter (28%) don’t invest in the markets.

Murphy adds that most Millenials said they are either stressed financially or just ok. Forty-two percent have little or no emergency savings. “Emergency savings is something on which plan sponsors can focus,” she says. “If individuals don’t have that, credit card debt increases, they are less likely to save and financial confidence decreases.”

NEXT: Helping single moms and Gen X

Fidelity also found single moms are in need of the most help. Most (97%) do not feel confident about their financial situation. More than half (60%) have little or no emergency savings, and 67% have credit card debt. About one-quarter (27%) spend more than they earn, while half (49%) break even each month.

“Single moms have so many competing financial priorities—their child’s next field trip or a sport their child wants to play,” Murphy notes. “Seventy-six percent said they are either living paycheck to paycheck or spending more than they earn.”

She adds that women in general tend not to talk about money, so employers need to get them engaged and talking about a strategy. “Budgeting is a key pillar of a financial wellness program,” Murphy says. “Fidelity has a rule of thumb: Spend 50% of pay on essentials, 15% for retirement—or at least work toward that, then save 5% for short-term expenses.

In its analysis, Fidelity also noticed a group it calls “Vacation Dreamers.” “Regardless of confidence, income, age or savings goals, everyone wants to get away,” Murphy says. This was especially true for Generation X individuals; they have a lot of competing financial priorities, but 48% said their top savings goal is for a vacation. However, 30% of Gen X have education debt, 54% have a mortgage, and they also have credit card debt.

Fidelity found having multiple savings goals decreased financial confidence. A financial wellness program can help individuals put a plan in place, perhaps to save in different investment vehicles “where the money is not easily accessible,” Murphy says. Or, having too many savings goals may not be best. “Prioritizing which are short-term and which are long-term may help,” she adds.

Murphy notes that other Fidelity research has found that people who have the ability to save even a little are much more financially confident. Individuals should be encouraged to save enough in their retirement plans to get the company match.

However, the goal of a financial wellness program expands beyond just savings, and should not all be focused on retirement. “Financial wellness is about so much more than retirement,” Murphy concludes.

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