Perspective: The Participant Experience

We’re also inundated by messages from the retirement services market that center on the concepts of retirement income planning and retirement “readiness.”

In this segment, I had planned to focus on structuring financial planning/retirement income programs to interface with participants. But then I came across an article in the July & August 2008 issue of AARP The Magazine titled “Financial Babel,” and I asked myself, “How effective are the services we provide to employees/plan participants?”

The article detailed the results of an AARP Financial survey—The Cost of Financial Jargon: Barrier to Smart Investing?—which examined the effects of jargon on consumers age 50+. Here are some of the findings:

Participants baffled by financial jargon:

• 30% have made an investment they regretted because they did not understand it.
• 29% waited too long to invest because the information provided was confusing.
• 13% failed to sign up for their employer’s retirement plan because they were confused by it.

Keeping it simple—not: the use of financial jargon by service professionals:

• 63% of Americans believe it’s to make a product seem more impressive.
• 50% feel it’s to distract people from the fees they’re paying.
• 50% believe it’s to make consumers feel less confident in handling their own finances.
• 31% believe it’s because the professionals think the participants understand the information.

Other notes:

• 60% of Americans don’t read financial literature because it’s too hard to understand.
• 41% are turned off by financial jargon.
• 54% think it’s easier to understand an IRS tax form than a mutual fund prospectus.

AARP’s study is important for retirement service professionals because it focused on Americans age 50+—those who are closest to retirement and have the most at stake. And the results are alarming. What I read into this is twofold:

1. The retirement services industry is ineffectively presenting training, education, planning, and services, which is creating confusion among plan participants; and
2. There is a great opportunity for financial advisors—who have the appropriate education, tools, and resources—to work with retirement plan participants and to help them pursue their financial planning and retirement goals.

Conclusion

Studies similar to the AARP survey show us that Americans are lacking in retirement readiness—we already know that. But AARP’s study also illustrates Americans’ lack of knowledge in working with their finances and their lack of confidence in where to go for this knowledge and expertise. It tells us that we must do a better job of understanding Americans’ fears, confusion, and misconceptions, before delving into the participant advice/financial planning arena.

I recently read a LIMRA study that found retirees are spending more money during retirement than they did while they were working. So why are we continuing to show financial planning/retirement income planning illustrations that assume a replacement ratio of 80 percent to 85 percent? Perhaps we don’t know our audience as well as we thought.

The previous articles in this series about incorporating financial planning services into qualified plans are available at:

• Perspective: Establishing Fees
• Perspective: Incorporating Financial Planning Services into Qualified Plans
• Perspective: Articulating Your Services to Plan Sponsors and Participants

Don’t miss the next article in our series, where we’ll explore how to make your service model scalable and repeatable.

Commonwealth Financial Networkª does not provide legal or tax advice.

Timothy Nihill is the manager of retirement products at Commonwealth Financial Networkª in Waltham, Massachusetts. He can be reached at tnihill@commonwealth.com.