Compliance November 4, 2015

myRA Ready for Use Nationwide

Employees can set up payroll deductions to fund their “my Retirement Account.”
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The U.S. Department of Treasury has announced the national launch of the myRA program.

With individuals being able to fund the accounts through payroll deduction and the program’s availability to those not participating in as well as those not eligible for an employer-sponsored retirement plan, employers need to prepare. Speaking at the American Retirement Association’s 2015 ASPPA Annual Conference, J. Mark Iwry, senior adviser to the secretary and deputy assistant secretary for retirement and health policy at the U.S. Department of Treasury, said the department has piloted payroll deduction into the myRA program with a group of employers to make sure any kinks are worked out.

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Individuals can set up automatic direct deposit contributions to myRA through their employer, fund a myRA account directly by setting up recurring or one-time contributions from a checking or savings account, and at tax time, direct all or a portion of a federal tax refund to myRA.

For employees who have not yet met the eligibility provisions of their employer-sponsored retirement plan, part-time employees who may never be eligible, or even eligible employees who feel they cannot save much or are afraid of investing in the market, myRA is a good way for employers to encourage them to start saving for retirement. The program requires an initial contribution of at least $25 and automatic ongoing contributions of $5 or more every payday, and accounts are available to any individual with an annual income of less than $129,000 or a couple with annual income of less than $191,000.

NEXT: Starting a savings habit

“Treasury is trying to provide an easy way for those who have never saved to dip their toe in and not worry about losing assets in the market,” Iwry said. “Once they get into the savings habit, they can rollover their accounts into private-sector IRAs.” Iwry said the accounts are invested in a new U.S. savings bond.

As myRA account holders grow their savings, they have the option to transfer to a private-sector Roth IRA with diverse investment options at any time, or transfer to a private-sector Roth IRA once they reach the maximum myRA balance of $15,000. The myRA accounts are like Roth IRAs in that taxes are paid up front, not at distribution time.

At the ASPPA conference Iwry and Phyllis C. Borzi, assistant secretary of labor for the Department of Labor’s (DOL) Employee Benefit Security Administration (EBSA), each said their departments are focused on expanding retirement plan coverage. In developing the myRA initiative, Iwry received an information letter from the DOL stating that myRA would not be subject to the Employee Retirement Income Security Act (ERISA).

More information about myRA is at https://myra.gov/.

Data & Research November 4, 2015

Cerulli Forecasts $7.8T Robo Market

The rapidly expanding retail channel also means rapid growth in robo-advice providers.
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The fastest-growing distribution network in financial services is retail, and the fast-growing share is robo-advice, according to Cerulli Associates, the Boston-based analytics company. Last year, direct retail grew by 11.8% and now stands at $5.1 trillion in assets. Only the wirehouse broker/dealer market is bigger, according to “Retail Direct Firms and Digital Advice Providers 2015: Addressing Millennials, the Mass Market, and Robo Advice.”

As the retail direct channel has grown, the so-called robo-advisers have emerged as competitors, offering consumers a new, automated approach to receiving financial advice. Cerulli’s report takes a look at how direct firms and digital advisers affect one another in the changing financial services landscape.  

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Cerulli estimates the addressable market for retail direct firms and digital advisers, analyzing the market for both types of advice from the perspective of the consumer generations: Millennials, Generation X, Baby Boomers and Silent Generation. Because nearly any industry conversation around automated advice involves a discussion of Millennial behavior and preference, Cerulli examines the propensity of the generations to use retail firms and digital advisers.

Millennials have the greatest propensity of any generation to use a digital adviser, according to the report, with 54% of this age cohort open to having their assets managed by online-only providers.

Though Millennials show the highest affinity for online advice, digital advisers should also target Gen-X and Baby Boomers, as they still have more assets than Millennials. A sizable proportion of both groups (39% of Gen-Xers and 29% of Baby Boomers) are willing to work with an online-only adviser.

NEXT: Another plum opportunity for robo-providers.

Also highlighted is the large, underserved mass market of consumers who need financial advice but cannot attract the attention of a traditional financial adviser: Cerulli believes this segment is a rich target for digital advice providers.

More than 101 million U.S. households have less than $250,000 of investable assets. Of this number, approximately 76 million households have less than $50,000 in investable assets. Retail direct firms and  digital advisers have an opportunity to address these largely forgotten mass- and middle-market consumers by creating scalable, online advice solutions.

The notion that digital advisers provide portfolios without any human interaction is false, according to Tom O’Shea, associate director at Cerulli. Many of the top digital advisers considered to be robos offer toll-free phone support or online advice. As retail channels add digital advice and digital advisers use human service reps, the two channels are converging: both providers are moving toward a model that combines online advice with human support. O’Shea says.

“To be successful, digital advisers will need to develop a strategy that incorporates the human element into their service model,” O’Shea says. “While some consumers may feel comfortable receiving all of their advice digitally, never interacting with a person, this is a small segment of the overall population. Most consumers want to know that they can reach out to a person to solve a problem with their finances.” 

More information on “Retail Direct Firms and Digital Advice Providers 2015: Addressing Millennials, the Mass Market, and Robo Advice,” including how to purchase, is on Cerulli’s website.

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