Data & Research March 21, 2013

What Advisers Say, What Investors Hear

Clients sometimes wander away from the investment policy statement because of distorted perceptions of market volatility, Russell Investments found in an adviser survey.

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And not all financial advisers use written investment policy statements with their clients, according to global asset manager Russell Investments. In Russell’s latest quarterly survey of U.S. advisers, the Financial Professional Outlook, only 39% of advisers said they create a written statement of risk and return objectives along with implementation guidance for all of their clients. About a third (33%) said they only create investment policy statements for their highest-net-worth clients, and a fifth (21%) of advisers do not use these statements at all.

“With the industry shift toward advisory-based relationships, it is surprising that so many advisers remain uncommitted to the best practice of utilizing investment policy statements with all clients,” said Rod Greenshields, consulting director for Russell’s U.S. adviser-sold business. “One of the best ways an adviser can fulfill their fiduciary duty and encourage a client to stick to a long-term, disciplined plan is to develop a statement of their objectives and related recommendations. These statements can serve as a type of commitment device, reminding investors of their goals and helping them make productive decisions in times of uncertainty.”

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A majority of advisers surveyed (60%) said that in 2012, they were asked by clients to deviate from an agreed-upon investment policy to reduce their exposure to risk assets.

(Cont’d…)

Possibly more disconcerting, almost as many advisers (59%) said that investors who looked to stray from the investment policy statement were acting on nonprofessional advice from the media, family or friends. Russell called the finding troubling in light of the strong showing of equity markets in 2012.

Greenshields said there are two common investor biases that are responsible. The first he calls “recency bias,” when investors assume the patterns they have experienced will continue indefinitely. “The second is availability bias, which occurs when an investor places more weight on the information they see most frequently,” Greenshields explained.

These biases are responsible for amplifying the political, economic and market events of the past few years, Greenshields said, “distorting investor perceptions of market volatility and reducing some investors’ ability to stay focused on their long-term plans.”

But when clients ask to deviate from the agreed-upon investment policy, it can be an opportunity to revisit the client’s objectives. Almost half of advisers (47%) said they use this tactic to review objectives or the full financial plan. Thirty-eight percent said they take the opportunity to revisit the investment policy or the portfolio asset allocation, or both.

When asked what advice they are offering clients for the duration of the year, many advisers pointed to the importance of a financial plan based on long-term objectives, but some also noted that they are emphasizing that a “buy and hold” strategy may not be appropriate in today’s investment environment.

(Cont’d…)

One adviser tells clients: “Stick to the plan. Don’t get too excited by rising markets or too depressed about declining markets. Our asset allocation recognizes both up and down markets are certain to occur.” Another offered, “Remember that portfolios are allocated to match their risk/reward profile, and that we will make adjustments as needed to keep that balance in effect.”

“A disciplined, long-term plan does not necessitate a static approach,” Greenshields pointed out. “In fact, a plan can benefit from elements of flexibility and adaptability that allow for appropriate response to changes in an investor’s goals and circumstances, as well as changes in the market. Yet, reacting to every short-term market event is not the answer. Advisers employing an investment process that responsibly adapts to the investor’s situation and provides opportunities to actively manage risk are likely better able to keep clients on track.”

The Financial Professional Outlook survey also examined the differing market views of investors by age, growing optimism about the market by both investors and advisers, and most frequent topics of conversation between investors and advisers.

The Financial Professional Outlook survey, fielded February 5 to February 19, includes responses from 479 financial advisers in 115 national, regional and independent advisory firms throughout the country. More information about the survey, including a video and a full report of findings, is here.

Data & Research March 21, 2013

Mobile App Best Practices for Plan Providers

Corporate Insight spends much of its time analyzing the retirement plan participant experience with plan providers.
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In its recent Retirement Plan Monitor Report, the firm offered best practices for mobile offerings from retirement plan providers—which can also be a list for things plan sponsors may want to look for from their providers.   

Best Practices: 

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  • Include retirement-related projections: “We look for practices or capabilities that would set one provider apart from another; personalized data is important,” Drew Maresca, head of retirement research at Corporate Insight, told PLANADVISER. He said participants who see an estimated retirement income will be more engaged since the data is a bit more personal than just an account balance. It could spur participants to take action. 
  • Allow participants to initiate calls from the app: Maresca pointed out that 11 of 18 firms Corporate Insight analyzed offer iPhone apps, but only two offer iPad apps, so the mobile app effort is more phone-heavy. It makes sense to tie in features of a phone, he added. This feature makes it simple for employees to initiate calls, because it is more difficult to go back and forth between a dial screen and app screen. In addition, if participants have to make a note to call later, the likelihood they will follow through decreases. 
  • Firms that lack apps should offer mobile sites: The majority of mobile devices direct participants to a website, which is sometimes ineffective, Maresca said, because it rarely fits the mobile device’s screen; mobile sites should be in place to allow participants to view data. 
  • Offer transaction capabilities: Maresca noted that none of firms analyzed allowed participants to rebalance, increase contributions, or initiate loans or withdrawals through the apps. He pointed out that other financial services firms allow trading or some transactions via a mobile app, so this is just the next logical next step for retirement plan providers. “I think it’s coming,” he said. “Firms are just weighing the benefit.” As with the ability to initiate calls, if participants have to make a note of a transaction they would like to complete, they are less likely to follow through. 
  • Take advantage of features available through iPad apps: This is just about the screen size, Maresca said. Providers can do so much more in terms of charts and graphs if they make use of the larger screen size; very few firms are making use of them. 

 

(Cont’d…)

Corporate Insight analyzed the mobile applications available to participants on iPhones, iPads and Android devices for its Retirement Plan Monitor Report. The iPhone app was the most common mobile resource; all but two firms assessed feature iPhone apps. Fifty-four percent offer Android-ready apps, while only two of the firms assessed feature apps optimized for the iPad.   

While some offered in-depth educational resources and others featured tools, the majority of firms listed a number of general account-related statistics. Every firm considered for the report lists a balance, and firms also prevalently listed the investments held within the account (77%). Additionally, 69% of firms listed a rate of return figure and a transaction history consisting of contributions made and loans and/or withdrawals taken. Only half the firms list contribution information (percentage of gross pay, amount at last pay period, etc.), and only 46% of firms list the vested balance.  

While the primary goal of apps is to inform, they also seek to educate, Corporate Insight said. While less prevalent, firms provide access to resources for participants interested in acquiring retirement-related knowledge. Forty-three percent of the apps reviewed feature retirement-related projections, while 28% feature educational articles. A number of firms go a step farther, providing access to more in-depth resources and market-related news.   

Ten of the 13 firms assessed provide access to customer service-related phone numbers in the respective customer service section. Additionally, nine of the firms allow participants to initiate phone calls with the click of a button.  

Some of the more creative resources Corporate Insight found include podcasts, quizzes and tools. Maresca said it is good to offer participants additional resources. He noted that quizzes allow participants to interact with firms and engage participants more with how they are doing in relation to the topic of the quiz. All the quizzes used gave answers with some substance to it regarding a participant’s retirement, so the participant knows more after taking a quiz.  

More information about the Retirement Plan Monitor Report is at http://www.corporateinsight.com/research/retirement.html.

 

 

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