Data & Research November 29, 2011

More Mass Affluents Seeking Guidance from Financial Advisers

Although one in five mass affluent investors are saving more this year than last, many are struggling to reach long-term financial goals, according to a Bank of America survey.
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Bank of America released its Merrill Edge Report, a semi-annual study assessing the financial concerns and priorities of what it calls the “mass affluent”—consumers with $50,000-$250,000 in investable assets. The research reveals that this group, which consists of approximately 28 million households in the United States, has taken proactive, corrective steps to improve their financial situation, but continues to seek guidance from established sources (such as financial advisers) to reach their goals.

The study found that 57% believe it will be harder to save for the long-term five years from now compared to today, and 27% feel that it will be equally as difficult to save five years from now as it is today. As a result, one in five (21%) reported that they have increased their savings in the last year.

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While half of mass affluent consumers feel that their financial situation is the same as it was a year ago, a quarter of this group (23%) believes their financial situation is better than it was a year ago. Those who experienced improved financial conditions attribute their success to: eliminating unnecessary expenses (42%), paying their bills on time (40%) and sticking to a budget (37%).

Furthermore, the mass affluent plan to continue tracking and managing their money (67%) and paying down debt (47%) in the next six months. However, more than one-quarter (27%) continued to tap their long-term savings to meet short-term needs. Among them, 26% did so to cover regular monthly living expenses such as bills or groceries.

Planning for retirement and children’s education 

In spite of short-term financial improvement, the mass affluent continue to struggle with long-term goals such as retirement planning and college savings. Nearly half (47%) of non-retirees expect to retire later than they had planned a year ago, an increase from 42% in January. In fact, the number one financial regret among the mass affluent is not contributing enough to their 401(k) or retirement savings (17%).

The top three concerns this segment has are similar to their top concerns in the January 2011 Merrill Edge Report. They include: the rising cost of health care (83%), ensuring retirement assets last throughout their lifetime (73%) and being able to afford the lifestyle they want in retirement (72%) (see “The “Mass Affluent” Lack Confidence”).

When it comes to saving for their children’s education, 44% of parents surveyed began saving before their child reached the age of six. However, 38% of parents who did so wish they began saving even earlier. Among those who wished they had started saving earlier, 41% noted that their everyday financial needs got in the way of saving for their children’s education, and 25% said that they underestimated the time they would need to save.

Despite regrets for not starting college savings earlier, only a third (32%) of parents plan to focus on college savings in the next six months. Among parents who intend to cover a portion of their children’s college tuition, the majority (59%) plan to rely on their personal savings, even though they feel behind in the process.

“Representing one out of every four U.S. households, the mass affluent have tremendous financial potential,” said John Thiel, head of U.S. Wealth Management for Merrill Lynch. “However, we know that their financial confidence is wavering and they still struggle to manage short- and long-term finances.”

Seeking trusted guidance but embracing new financial management tools  

The mass affluent continue to seek financial information and guidance from established sources, such as a financial adviser (63%, up from 53% in January), friends and family (55%, from 45%) and their brokerage (37%, from 32%). In addition, the most common factor mass affluent Americans cite as increasing their confidence in their ability to meet their financial goals is receiving advice from a qualified financial adviser (50%).

Though the mass affluent still rely on traditional sources for financial information and guidance, this group is also quick to adopt emerging technology, BofA reports. Among the mass affluent, half (50%) are avid users of online banking and investing. This is higher than those who say they’re avid users of text messaging (37%) and Facebook (36%), indicating a clear focus on personal finance and adoption of new technology.

Even among 18- to 34-year-olds, 75% are avid users of online banking and investing, still slightly higher than the 72% who are avid users of Facebook. In addition, a quarter (25%) of mass affluent respondents said they are avid users of mobile banking. This group cites their top mobile banking activities as: checking account balances (81%), transferring funds (64%), paying bills (63%) and researching investment or financial information/products (47%).

“Even with online and mobile banking skyrocketing, many people are still seeking guidance from a trusted adviser,” concluded Alok Prasad, head of Merrill Edge.

Products November 29, 2011

Fiduciary Benchmarks Rolls Out Plan Design Optimization Tool

A recently introduced tool from Fiduciary Benchmarks seeks to help plan sponsors optimize their plan design and improve their participants’ retirement readiness.
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The Plan Design Optimization Report, introduced earlier this month, has three main steps: 1) calculating the retirement readiness ratio of a plan’s median participant, 2) examining a chart of all eligible participants’ retirement readiness ratio and 3) putting these statistics through an algorithm to determine where plan design improvements can be made.  

The algorithm behind the Plan Design Optimization Report takes into account every eligible participants’ age, compensation, deferral rate, investing behavior, social security entitlements and any supplemental savings or retirement income. The service uses the last discrimination test performed for the plan to obtain compensation and deferral information for eligible employees along with the latest investment holdings of each employee and a short questionnaire that reflects the company’s specific attitudes about retirement savings and investing.  

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Castle Rock Investment Company (CRIC) is the first RIA to implement the tool with a sponsor client. 

The report “shows plan sponsors how prepared their employees are to retire successfully,” Michele Suriano, president of CRIC, said to PLANADVISER. “The second element is the optimized plan design suggestions on how to increase the number of employees that can retire successfully while maintaining the same level of employer contributions, whether the employer makes a contribution or not,” she added.  

Suriano has recently completed using the Plan Design Optimization Report with her client, Platte Valley Companies of Scottsbluff, Nebraska.  

“In the case of Platte Valley Companies, they were making a profit sharing contribution of 6%.  Effective January 1, their plan design will change to a 3% Qualified Non-elective Contribution (QNEC), with a 50% match on the first 5% and 150% match on the next 1%.  They increased the overall company contribution from 6% to 7% after seeing the impact it would have on their employees’ retirement readiness,” Suriano explained.  

 “The easy ideas are to introduce automatic enrollment and automatic escalation if those design elements are not part of the plan yet.  The more complex calculations show the plan sponsor how to maximize the effectiveness of the employer’s contribution and provide an estimate of the impact of the different designs,” she said. 

For more information, contact Craig Rosenthal at 203‐405‐1853 or crosenthal@fiduciarybenchmarks.com.  

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