Data & Research October 5, 2016

Client Marital Status and Career Outlook Central to Risk Tolerance

Research from Northwestern Mutual suggests a client’s thoughts about marital status and career ambition are among the strongest determinants of risk tolerance and general financial attitudes.
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Single men and women have distinctly different lifestyles and financial planning perspectives from their married counterparts, according to the 2016 Northwestern Mutual Planning and Progress Study, and the differences have a big influence on financial services preferences and needs.

“As demographics shift and lifestyle trends continue to evolve, single households are now 45% of the U.S. population, and growing, according to Census Bureau data,” says Rebekah Barsch, vice president, planning and sales, Northwestern Mutual. “Understanding the unique needs of this vital segment should be a key priority for the financial services industry.”

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Overall, single men and women are generally less satisfied with their financial circumstances than married Americans. More than half of single women (55%) and nearly half of single men (49%) are unhappy with their financial situations compared to one-third of married women and even fewer married men.

“Singles are nearly twice as likely as married people to feel ‘not at all’ financially secure (38% of single men and women combined versus 23% of married men and women combined),” Northwestern Mutual observes.

As a result, financial anxiety runs higher among singles than among married people. More than four in 10 single men and half of single women say they feel either a moderate or a lot of anxiety about their personal financial security, “a notably higher percentage than married individuals (35% married men and 41% married women).”

NEXT: Gaps in financial planning cause concern 

This low level of financial confidence may be a function of gaps in planning, the Planning and Progress research suggests.

“Two in three singles are not confident that their financial plan can withstand market cycles,” for example, “half of all singles (49%) have not spoken to anyone about retirement—double the percentage for married individuals (24%).” Two out of three singles do not have regular access to a financial adviser.

Crucial to consider—despite shared financial concerns single men and women have little in common when it comes to other aspects of their lives, according to Northwestern Mutual.

“Single men appear to be more focused on professional success, opting for ‘satisfying career’ as an attribute of the American Dream more frequently than single women and married people,” the research shows. “Moreover, single men were twice as likely as single women to choose ‘freedom to pursue my dreams’ as the top benefit of financial security.”

For single women, on the other hand, the most pressing priority appears to be relief from financial obligations, with six in 10 (compared to 46% of single men) choosing “peace of mind from not worrying about day-to-day expenses” as the leading benefit of financial security.

“Notably, despite the financial pressure, single women are generally more positive about various aspects of their lives,” Northwestern Mutual also observes. “Three-quarters of single women (74%) are happy with their social lives compared to two-thirds of single men (66%) and they also indicate a higher level of satisfaction with their family life and physical well-being.”

Additional research findings are available at www.northwesternmutual.com. 

Compliance October 5, 2016

Small 401(k) Faces Lawsuit Over Lack of Investment Diversification

The lawsuit notes that the plan's fiduciary ignored multiple suggestions to hire a professional to manage the plan's investments.
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Participants in the Emerald Coast Eye Institute (ECEI) 401(k) plan have filed a lawsuit alleging that the company and its founder Samuel Poppell breached their fiduciary duties of prudence under the Employee Retirement Income Security Act (ERISA) by not properly diversifying investments.

Poppell selected and controlled investments in the plan, and plan participants did not have authority to choose how their assets were invested. According to the complaint, he chose to significantly concentrate the ECEI plan assets in a single holding, VirnetX, and further failed to remove this holding as it continued to lose value. The ECEI plan’s non-cash investments were at times entirely concentrated, or nearly entirely concentrated, in VirnetX.

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The complaint notes that Poppell was not a licensed or registered investment adviser or financial professional, and he did not maintain certifications in any investment related area. He had no meaningful expertise, education, or professional knowledge in finance, investment management, or portfolio management. It also claims that on multiple occasions he rejected suggestions and recommendations, including from the plan’s third-party administrator, to retain a qualified investment adviser or manager to manage the ECEI plan portfolio.

The lawsuit says the defendants learned of VirnetX through online message boards and “unqualified or speculative” investment blog-type websites. They did not conduct sufficient or adequate due diligence of VirnetX or many of the other securities purchased in the ECEI plan portfolio. VirnetX has widely been identified as, referred to as, and accused of being a “Patent Troll.” Patent Trolls are companies that exist primarily or exclusively to pursue aggressive patent-infringement lawsuits against other companies.

As of December 31, 2014, the ECEI Plan’s total exposure to VirnetX was in excess of 50%, with the remaining holdings concentrated in cash equivalents. By the end of 2014, the ECEI Plan’s position in VirnetX had already declined in value by $543,235.91 since Defendants’ initial purchase. On or about the morning of September 16, 2014, VirnetX stock plummeted in value by nearly 50%. Through the filing of the complaint, VirnetX’s share prices have declined over 90% compared to the share price on June 1, 2012.

The lawsuit alleges that defendants knew or should have known that in taking such significant risks they were not acting in the best interest of plan participants and their beneficiaries, particularly in light of the fact that numerous class members were at or near retirement age. In addition, it says, as a result of defendants’ actions, plaintiffs and members of the proposed class suffered significant losses. “In particular, the ECEI Plan suffered actual losses in excess of $600,000, and additional underperformance damages estimated to be in excess of $500,000,” the complaint says.

The lawsuit also contends the named plaintiffs were fired for bringing up their concerns about the plan’s investments to the plan’s third-party administrator and Poppell.

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