Data & Research May 3, 2016

Workers Need Help Understanding Their Retirement Plans

A survey found that employees are confused about benefits including group retirement plans, but retirement is their most important financial goal and they would like help from a professional to achieve it.
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Among workplace benefits, employees find group retirement plans such as 401(k) and 403(b) the most difficult to understand, according to the Four Seasons Financial Education 2016 Employee Financial Wellness Survey. Thirty-nine percent of workers said their retirement plan is the hardest to comprehend, while 35% said they fully understand all their employer benefits. The second most difficult benefit to understand is the group health insurance plan, cited by 26% of employees. Health savings account and flexible spending accounts tied for third most difficult (20%), and life insurance was reported to be the least complicated benefit to understand (13%).

When asked how well they understand their employers’ 401(k) plan investment options, 14% of employees who have no financial wellness programs at work said “extremely well.” That number increased to 22% for employees who have a wellness program.

“This data tells us even more work and innovation are needed to help employees understand their employer retirement plans,” says Travis Freeman, president of FSFE. “It likely requires a team effort between the employer, plan adviser and financial wellness program.”

Despite retirement plans being the most difficult benefit to understand, overall workers said retirement is their most important financial goal (35%), followed by budgeting and managing debt (33%) and financial planning (22%). Tax planning was the least important goal (1%). When broken down into age groups, however, the survey found that only 7.6% of employees ages 18 to 29 consider retirement their top financial goal. This group is most focused on budgeting and paying down debt. Women were also more likely than men to name budgeting and debt as their primary financial goal (36.5% compared with 28.2%, respectively).

Employees said access to one-on-one guidance with a professional would be most helpful in achieving their retirement goals (48%), followed by more retirement education (38%), a customized retirement plan (37%), and calculators and tools (23%). The survey also found that many workers would be open to the possibility of sharing the cost of a workplace financial wellness program that could help them achieve their goals (49%). Thirty-three percent said it’s unlikely, and 18% said it’s likely.

The survey results are available here.

In Practice May 3, 2016

CFA Survey Finds Stubborn Pockets of Robo-Resistance

A little more than six in 10 CFA charter holders say they have some familiarity with automated financial advice tools, “implying a fairly high level of awareness overall.”
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A large poll of chartered financial analysts (CFAs) conducted internally by the CFA Institute found widely varying opinions of the state of the robo-advice industry—with a sizable plurality of charter holders suggesting they have little interest in the new wave of fin-tech.

Just 19% of those polled said they were “very familiar” with the so called robo-advice tools and services currently out there on the market, and “a not insignificant 16% of CFA members are not at all familiar with such tools.”

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The findings come from a new report published by the CFA Institute, which it put together at the request of European banking and market authorities interested in learning about the state of robo-advice globally. Explaining the results of its global member survey, the CFA Institute says the North America region clearly has the highest level of familiarity when it comes to integrating data and automation technology into portfolio management and financial planning. Interestingly, developed European markets actually lag behind some emerging markets in terms of charter holders’ awareness of and openness towards robo-advisers.

Looking across all its responses, CFA Institute finds asset management (54%) is considered to be the sector that will be most affected by automated financial advice tools, followed by banking (16%), securities (12%), and insurance (8%). According to the survey report, many of the open-ended responses put forward under “other” noted financial advisers and wealth management as being the specific group that will be most affected.

“These findings are intuitive given the increasing proliferation of robo-advisers,” CFA institute suggests.

Taking a step beyond simple awareness, CFA Institute also asked charter holders how individual investor clients may be impacted by the increased use of technology. Most respondents felt that “most financial advice tools offer relatively unsophisticated advice based typically on offering a diversified portfolio.”

“It is likely because of this stylized fact that 70% of respondents think mass affluent investors will be positively affected by automated financial advice tools, followed by other investors (67%) and high-net-worth individuals (41%),” the report explains. “The higher the wealth, the more likely that respondents do not think investors will be affected by automated financial advice tools, which are not yet capable of offering complex, tailored advice.”

NEXT: Other anticipated impacts among CFAs

According to the CFA Institute poll, the rise of automated financial advice tools may impact consumers through several mechanisms.

“Some of these impacts may be positive, others negative. Our survey suggests that cost, access to advice, and product choice are all viewed as more likely to have a positive impact on consumers,” the report says. “Respondents are most divided on opinions of the impact of financial advice tools on market fraud and quality of service, with quality of service being the most negatively impacted.”

Related to this, many CFAs apparently lack trust in the technology underpinning robo-advisers. Many suggested the increase in automated financial advice “may lead to new risks or the re-evaluation of existing risks. Forty-six percent of respondents note that flaws in automated financial advice algorithms could be the biggest risk introduced from automated financial advice tools, followed by inappropriate selling (30%) and privacy and data protection concerns (12%).”

However, even those advisers who are otherwise skeptical of the benefits of robo-advice highlight the potential cost-effectiveness of the approach. In the North America region, for example, 90% of CFA holders polled said greater use of robo-advice would have positive benefits from a cost perspective for individual clients and consumers in general.

Other specific concerns called out by CFA holders were that “automated financial advice tools are not likely to be able to account for behavioral biases in clients or to account for personal circumstances in a satisfactory fashion,” and the “increased risk of herding as more and more investors are directed towards passive strategies.”

Additional survey results are reported here. 

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