Data & Research December 16, 2014

Participants Acknowledge Investing Ignorance

Most employees participate when offered access to a defined contribution retirement plan, but a strong majority also cite worries and ignorance about tough investing topics.
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A new blog post in the LIMRA Industry Trends series argues there is a lot to like about the fact that 401(k) plans have become Americans’ chief retirement savings vehicle, but major challenges remain.

LIMRA points specifically to employer matching contributions, tax breaks, loan availability, and the convenience of automatic paycheck deferrals as the main reasons why 401(k)s work well for workplace retirement savers. The claims are based on a new LIMRA Secure Retirement Institute consumer survey exploring the use of defined contribution (DC) and defined benefit (DB) plans in the workplace—paying special attention to issues such as employee participation, attitudes, risk tolerance and knowledge.

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LIMRA says the survey shows 79% participation for eligible private-sector employees offered a DC plan at work—up two percentage points from 2013. Eighty percent of public-sector employees eligible for a DC plan choose to participate, LIMRA says, up from 79% a year earlier. 

The research also finds a continued decline of DB plans offered in the private sector. In 2014, just 16% of employers offered a defined benefit pension. Notably, more than 40% of employees eligible for DC plans at work are also saving for retirement outside of work, LIMRA finds.

While DC participation rates remain high, not all findings from the survey are positive. For example, employees acknowledge they’re not as informed about investing and finances as they would like to be. In the public sector, LIMRA notes only 7% of workplace retirement investors feel very knowledgeable about their investments. Investing prowess is nearly as rare in the private sector, with 12% of investors feeling very confident in their financial knowledge.

LIMRA says many employees recognize that financial services professionals provide a valuable service. More than half of public-sector employees, and about half of private-sector employees, agree or strongly agree that financial advisers provide performance potential beyond what an individual can achieve alone.

This means there is significant opportunity for financial professionals to have conversations with employees who aren’t as aware of money matters as they’d like to be, LIMRA concludes.

LIMRA has also published the survey findings in two infographics, one for the private sector and one for the not-for-profit sector. Sample sizes and demographic breakdowns are also provided.

Data & Research December 16, 2014

Spectrem Ranks Advisory Client Pet Peeves

Many clients will fire an adviser that doesn’t return phone calls same day, according to research from Spectrem Group, but that’s far from the only client concern.
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Spectrem explores important elements of the adviser-client relationship in its recent report, “Advisor Relationships and Changing Advice Requirements,” which is described in a blog post on the firm’s Millionaire Corner portal. The firm polled current 401(k) participants who use advisers for the analysis, finding many are careful and attentive in their relationships with advisers—knowing exactly what they like and don’t like when it comes to financial advisory services.

Notably, only a little more than half (56%) of all DC plan participants use a financial adviser, according to Spectrem, and the percentage drops below 50% for plan participants below the age of 36. Older 401(k) investors are more likely to have an adviser relationship, however.

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Asked to explain any reason that an adviser might be fired, almost half (49%) of participants said “not returning phone calls in a timely manner.’’ Interestingly, it was the youngest segment of DC participants (36 and younger) and the oldest segment (over 65) who were most adamant about this point, with 59% in these groups saying they want to get a return phone call in a short time frame.

Spectrem says 51% of plan participants expect a call back within the same day, and 10% want a call within the hour. A little less than four in 10 (39%) think a return call the next day is acceptable, and only 10% are willing to wait more than one day, the research finds.

“Forty percent of all plan participants expect quick responses to email requests for information,” notes Spectrem’s Kent McDill, who is on the Millionaire Corner writing staff. “And 40% said they would fire an adviser who is not proactive in making regular contact.”

Looking beyond communication practices, nearly half (47%) of plan participants said they would consider firing their adviser if it seemed he was not providing good ideas and advice. When it comes to investing and stock market performance, 27% say they would fire their adviser if he underperforms in comparison to the overall stock market for too long a period.

Notably, plan participant seem to be fairly patient about lagging performance. Fully 24% would fire their adviser over investment losses over a five-year period, while 22% would fire their adviser for two years of losses. Fourteen percent were even less patient, saying a one-year loss period would be reason to consider an adviser change.

Spectrem concludes by observing 25% percent of plan participants would fire an adviser who appears not to understand the investor’s risk tolerance, and 23% said an adviser who talks only about investments and not the total financial situation would be in line to be let go.

More insights and research from Spectrem is available at www.millionairecorner.com.

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