Data & Research September 26, 2017

Financial Struggles Overshadow Millennials' Retirement Savings Confidence

Despite confidence in their level of retirement savings, 46% of Millennials surveyed indicate they have a significant amount of debt, and 43% report they cannot afford to pay for their health care.
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Nearly six in 10 Millennials (58%) surveyed by Wells Fargo say they are saving enough for retirement.

However, men are significantly more sure about that (68%) than women (50%).

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Despite this level of confidence, Millennials in the study were asked to rate areas of satisfaction in their lives, and the fewest were satisfied with their “financial life” (among eight categories). Only 32% of Millennials say they are satisfied, rating it a 6 or 7 on a 7-point scale. Forty-six percent of all Millennials indicate they have a significant amount of debt. More non-affluent Millennials (50%) said that than affluent Millennials (35%).

In addition, 43% of Millennials report they cannot afford to pay for their health care (35% of affluent Millennials and 46% of non-affluent), and 42% say they rely regularly on others, such as their family a spouse or friends, for financial support (44% affluent, 40% non-affluent).

“Millennials are facing significant debt and say their financial life is generally not satisfying. Money is probably the area they don’t want to grapple with. Yet if we can change this mindset and expand the population of Millennials who engage with their money, they will reap the rewards of greater happiness, and at the same time, put themselves on better financial footing. Taking a more proactive stance with money is not necessarily dependent on having more money. Millennials should start to engage as soon as they start earning money and employers and financial service firms can help push this effort forward,” says Kristi Mitchem, CEO of Wells Fargo Asset Management.

But, financial pressures are not all Millennials are grappling with. The research found 41% say they have “reduced investments” in the stock market because of the effects of the Great Recession. This fear of the market can hurt Millennials’ retirement savings.

Seventeen percent of Millennials are not currently invested in the market but “plan to in the future,” the survey found. Twenty percent are not currently invested in the market and “never plan to be,” and 53% say they will “never be comfortable investing in the market.”

For more information about the study, visit www.wellsfargofunds.com/generations.

The Markets September 26, 2017

Advisers Seek Next Generation Active Investment Packaging

“Distribution of standalone product has become more competitive in the wake of commoditization and platform consolidation,” according to a new analysis from Cerulli Associates. 
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New data provided by Cerulli Associates, taken from the firm’s “U.S. Product Development 2017” publication, lays out financial adviser-based product demand in an increasingly model-driven environment.

Cerulli warns asset managers “need to better align their product development plans with how financial advisers construct portfolios.” Otherwise both asset managers and advisers will struggle to meet the evolving needs of clients on the ground.

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“This includes their planned use of active and passive, investment vehicles, and asset classes,” explains Brendan Powers, senior analyst at Cerulli. “Our data shows that 58% of asset managers are currently offering asset allocations that consist entirely of their own underlying strategies.”

From a “capabilities standpoint,” Cerulli finds asset managers are most commonly looking to build out quantitative or strategic beta strategies to complement their active offerings. “These capabilities can be offered at a lower cost compared to active, with upside potential over the index,” Powers notes.

Powers states it is “imperative” for asset managers and advisers to be cognizant of where active has advantages over passive, for example in municipal bonds or emerging markets equity. On the other side, there are also instances where passive currently holds an advantage and likely will for some time, for example in large-cap U.S. equities.

“As advisers’ needs are changing, so must the product lines,” Powers adds.

Cerulli’s research shows more than half (55%) of advisers create customized investment portfolios on a client-by-client basis, while 42% start with investment models and alter on a client-by-client basis.

“For advisers using models in some capacity, 80% use internal models created by their practice, 68% use home-office models, and 66% use asset manager models at least sometimes,” Powers reports. “More than 80% of advisers agree that passive investments help to minimize overall portfolio fees and that active managers are ideal for certain asset classes.”

Other findings suggest advisers plan to use mutual funds less in 2019. Instead, they will use more exchange traded funds, collective investment trusts and separate accounts. Indeed, nearly 70% of asset managers that offer collective investment trusts feel they provide their firm with a large opportunity for future growth. Of those that do not offer the vehicle, 14% plan to build them out over the next 12 months.

“When asked about which client portfolio objective they are focused on, nearly all advisers (98%) report downside risk protection,” Powers concludes. “In another widespread trend, shifting to fee-based accounts has been a significant influence on lower-cost share class use for 63% of advisers.”

More information on obtaining Cerulli research is available here. 

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