Data & Research May 29, 2014

Adviser Annuity Use Down as ETFs Gain Steam

New research from a coalition of retirement industry groups suggests financial advisers are moving away from the use and recommendation of annuities, despite industry buzz around income products.
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Only about 41% of advisers surveyed for the recent 2014 Trends in Investing Survey said they currently use and recommend variable annuities, compared with a high of 58% observed in 2006 and 2008 editions of the survey. Even fewer advisers (29%) said they are currently using fixed annuities in client investment strategies, down from about half in 2010.

Survey results indicate an overall increased use of cash and equivalents since 2006, when 53% percent of professional financial planners surveyed were using and recommending cash, compared with 79% today.

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“The study seems to point to a shift toward investments with greater transparency and liquidity,” explains Valerie Porter, director of the Financial Planning Association (FPA) Research and Practice Institute, one of the industry groups behind the survey. “Perhaps advisers are responding to consumers’ demand for lower-cost investments that allow them to be more nimble in their investment approach. And I think it’s safe to say everyone values cash a little more since last decade’s market collapse.” 

Other key survey findings show the following:

  • While 50% of advisers indicate that they do not plan to decrease the use and recommendation of any investment vehicles in the next 12 months, 15% will decrease use of individual bonds and 16% will decrease use of non-wrap mutual funds.
  • Although the majority of advisers (57%) believe a blend of active and passive management provides the best overall investment performance, more advisers increased their use of passively managed funds over the last year (30%) than increased use of actively managed funds (18%).

The survey also showed that advisers maintain a positive long-term economic outlook, with 57% being “bullish” for the next five years, compared with 39% who are “bearish.”

The 2014 Trends in Investing Survey showed that 79% of advisers currently use or recommend exchange-traded funds (ETFs) with clients, up from just 40% in 2006. Further, 39% of advisers surveyed said they plan to increase their use of ETFs over the next 12 months—the highest anticipated increase among 17 investment vehicles.

Advisers expect inflation to rise over the next five years, to more than 3%. They are primarily using equities as inflation hedges, according to the survey, although alternative investments such as real estate investment trusts (REITs) and commodities are also commonly used as hedges.

The majority of advisers are currently re-evaluating the asset-allocation model they typically recommend or implement. When asked why, 56% of those advisers said anticipated or existing changes in the economy in general are necessitating changes to their asset allocations. Many also indicated they regularly review and adjust asset allocations regardless of market activity.

Forty-five percent said anticipated or existing changes to specific investments are making them re-evaluate asset allocations, and 28% said anticipated changes in inflation are making them reconsider allocations.

A full summary of The 2014 Trends in Investing Survey, sponsored by the FPA Research and Practice Institute and the Journal of Financial Planning, is available here and includes additional details and narratives.

Data & Research May 29, 2014

Northwestern Mutual Study Shows Low Adviser Use

Americans prioritize financial matters second only to their health, according to a Northwestern Mutual study, yet few seek professional advice or have a long-term plan for retirement.
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“Personal finances” and “personal health” are the top two priorities for Americans in 2014, as measured by Northwestern Mutual’s “2014 Planning and Progress Study.” Workers consistently rank health and finances ahead of things like “spending time with family and friends” and “career,” the study shows.

But just because Americans prioritize finances and health does not mean they are taking widespread positive action to improve their outlook. While six in 10 U.S. adults say their financial planning efforts need improvement, a large majority are not seeking professional help, the study shows. Two thirds of Americans don’t have a long-term financial plan, and 71% do not have a financial adviser.

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Other findings in the study show a strong majority of Americans (70%) feel that the economy will experience future crises, but only about two in five agree their financial plan can effectively navigate an economic downturn. For the 30% of Americans who currently work with an adviser, 69% consider themselves disciplined planners and 68% feel “very financially secure.”

Workers age 60 and older are three times more likely than those under 29 to use an adviser, at 41%, compared with 13%. Those who are married or living with a partner are about two times as likely as those not married to use an adviser (33% vs. 17%). Parents are also more likely to enlist the services of a professional financial adviser more often than those without children (34% vs. 20%).

Northwestern Mutual says that even workers who have taken steps to prepare for retirement and the long-term future still have room for improvement. The study shows that, among American adults who do have long-term financial plans, just 25% of Americans with written financial plans review them quarterly, and only a little more (30%) do so at least annually.

Greg Oberland, Northwestern Mutual president, says the research suggests Americans are recognizing the need for improvement, yet most are still choosing to make difficult financial decisions entirely on their own.

“In the same way that most people wouldn't hesitate to see a doctor, or even work with a personal trainer, we believe more Americans need to see their finances in a similar light,” Oberland says. “While finance is obviously different than health, both are highly complicated and have long-term implications. As a result, expert advisers are critical.”

He urges workers to remember that financial planning “is not a set-it-and-forget-it exercise.”

“While it's encouraging that many Americans are engaging with financial issues on a regular basis, I'm hopeful those numbers will increase as more people see the benefits of a disciplined approach to long-term planning,” Oberland says.

A multimedia presentation on the study results can be viewed here. The full results can be downloaded here.

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