Data & Research September 22, 2015

Shift to DC Has Not Led to Less Retirement Savings

A new analysis finds that the change in pension wealth from the shift to mostly DC retirement plans is relatively steady.
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The accumulation of retirement assets has not declined as a result of the shift from defined benefit (DB) to defined contribution (DC) plans, according to an analysis from the Center for Retirement Research at Boston College. 

Researchers compared data from the National Income and Product Accounts (NIPAs) about DB plan accrued benefits and DC plan contributions and found, for the period from 1984 to 2012, DB plan accruals declined sharply, and DC plan contributions rose commensurately as the use of 401(k) plans grew. On balance, the decline in DB plan accruals has not been fully offset by rising contributions to DC plans, leading to a slight overall decline in retirement saving.        

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However, the researchers note, retirement plan wealth also goes up by the return on accumulations. They determined the share of DC assets and DB accumulated accruals attributable to current workers, assumed a 5.5% rate of return for both types of plans and applied that rate to accrued liabilities in DB plans and to reported assets in DC plans. 

The results show that, when returns on accumulations are added to contributions, the annual change in retirement plan wealth appears to have been relatively steady over time. “Individuals covered by 401(k) plans have taken more risks than participants in defined benefit plans, and the high returns associated with risky investments have produced substantial asset accumulation,” the researchers write in their brief.

What has changed is that individuals, rather than plan sponsors, now bear all of the risk. So, the researchers concede that, while the aggregate data suggest that accumulations have not declined, the pattern of outcomes among individuals may have changed substantially. 

The brief may be downloaded from here.
Client Service September 22, 2015

Russell Quiz Shows Advisers Their Superpowers

An online game challenges advisers to pin down their adviser style.
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An online quiz from Russell Investments walks advisers through several client and investing scenarios: Your client in retirement wants to live high on the hog, or a younger client is looking for information about you online, to name two. Advisers can choose the answers that best fit their own situation and receive a snapshot of their advising and investment decision-making style: traditionalist, hunter, architect, CEO or power user.

Traditionalist advisers, for instance, have “a firm set of beliefs, a customer service mindset, and a Milton Friedman Bobblehead,” according to Russell’s site. Along with the light remarks are solid suggestions for practice management, a catalogue of an adviser’s likely strengths and how to approach a range of client situations. Navigating these real-life investment and business scenarios helps advisers learn more about their decision-making styles and access resources to help address some practice management challenges. The quiz generates potential solutions, resources and best practice approaches.

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While playing, advisers can step back and consider the best course of action in scenarios that may keep them up at night. Also included are the adviser’s possible associated superpowers, opportunities and risks. Superpowers for the five types range from data analysis to tech know-how to gorgeous spreadsheets to ambidextrous texting thumbs, for example.

As well as their personal snapshot result, Russell Investments shares insights and best practices for handling the various situations encountered throughout the online journey. Risks for the traditionalist, for instance, are that the client is not always right, and one-to-one service can make it hard to expand a book of business.  

Pointing out that gamification has been extremely popular among consumers, Kevin Bishopp, a director in Russell Investments’ U.S. adviser-sold business, says the firm thought financial advisers might find some benefit from it. “The quiz is designed to be fun, fast and informative for advisers,” Bishopp says. “The goal is to provide real-time information and practical advice to help advisers better tackle common concerns, such as how to construct a more tax-efficient portfolio, more effectively manage time and build business scale, as well as work through challenging situations presented by clients and the markets. By answering just a few questions, advisers receive information on potential solutions, resources and best practice approaches.”

Scenarios in the quiz include:

  • Your lowest revenue clients take the most time/resources to manage
  • A cost-conscious client asks you what you do to earn your fee
  • A client asks about robo-advice

The “What kind of adviser are you?” quiz, which is mobile and tablet compatible, does not ask for any personal information and is on Russell Investments’ website.

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