Advisers Weigh Financial Planning Versus Money Management

The latest U.S. monthly product trends report from Cerulli Associates compares the approaches to client service and practice leadership adopted by men versus women advisers.

The latest U.S. monthly product trends report from Cerulli Associates compares the approaches to client service and practice leadership adopted by men versus women advisers.

At a high level, the analysis finds women are more likely than men to run “financial planning practices,” as opposed to running practices focused on “money management.”

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Cerulli researchers find that asset managers are looking for new ways to package and segment their services for advisers, and increasingly this includes analyzing the role of gender in product preferences and client service styles. While there are certainly exceptions, Cerulli says women across the U.S. advisory profession are measurably “more likely than men to run financial planning practices and less likely to focus exclusively on asset management as money managers.”

Close to one-third of women working as advisers identify themselves as “financial planners,” compared with 21.6% of men. Only 6.4% of women say they run their practice with a focus on money management, less than half the percentage measured for men.

This reporting builds on an earlier Cerulli analysis that identifies a broad move by advisers away from focusing on tasks having to do with pure asset management in favor of tasks such as developing goals-based, individualistic retirement planning for clients. The idea is that successful advisers of tomorrow will allow technology to do the heavy lifting on the portfolio management side, while the adviser can focus on the personal and psychological aspects of planning.

“Industry changes continue to power the popularity of holistic wealth management,” the analysis states. “For example, regulatory shifts have prompted broker/dealers to reevaluate their risk profiles and encourage advisers to use home-office discretionary platforms. If they are successful, advisers may increasingly relinquish discretion. If an adviser does not build individualized client portfolios or their own models, choosing to outsource investment management, they may feel compelled to justify the fees they charge by providing a more expansive set of services, including financial planning.”

According to Cerulli researchers, both women and men working as advisers in the early stages of their career report entering the profession because they have an interest in helping people reach their financial goals. This is a major factor for 94% of women and 84% of men in the industry.

“While both genders consider this factor important, women are more likely to be highly driven by this motivation,” the research explains. “Similarly, an interest in investment topics is less likely to inspire women to become financial advisers than it is men (59% for women versus 91% for men). For advisers who enjoy working with clients toward goals, the goals-based planning process allows them to navigate a client through the emotional tradeoffs of investing and setting meaningful milestones.”

Cerulli researchers conclude that “early-career sentiments will continue to play out via the business models advisers settle into further in their careers … Close to three-quarters (73%) of women find unbiased product recommendations from wholesalers very valuable, compared with only 43% of men. Women advisers are also more likely than their male counterparts to consider advanced financial planning techniques and portfolio construction recommendations to be very valuable offerings from their wholesaling partners.”

Information about obtaining Cerulli Associates research is available here

Education on Lifetime Income Needed in Not-for-Profit Sector

In-plan lifetime income options can secure certain benefits participants may not find in retail solutions, suggests a new study by TIAA.

More than half (59%) of plan sponsors in the not-for-profit sector are concerned that employees will run out of money in retirement, according to a new survey by TIAA. The study also finds that the top concern among sponsors is that workers would delay retirement due to inadequate savings (64%).

These sentiments are often reflected in the private defined contribution (DC) plan sector as well, and TIAA points to several solutions that may allay these fears including in-plan retirement income options – a choice offered by more than half of the plans TIAA surveyed.

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However, the firm says those who don’t offer one share common misconceptions about annuities. Thirty-four percent say employees have better access to these investment vehicles outside the plan. Meanwhile, 21% believe the fees associated with these options are too high.

Derek Heaslip, senior managing director of institutional retirement, TIAA, says in-plan options can offer various benefits participants may not find in retail products, including lower fees.

“In-plan lifetime income options are usually group annuities so the participant typically gets better fees,” he tells PLANSPONSOR. “You can also start contributing before you retire. When you accumulate over time, you typically get better rates and the benefits of vesting and compounding, as opposed to investing in a guaranteed income option at the point of retirement.”

Ron Pressman, CEO of Institutional Financial Services at TIAA, adds: “We’ve seen that employees who contribute to an annuity through their retirement plan over time can generate more retirement income than those who simply purchase one upon retiring.”

However, research suggests that lifetime income options across the board can be very complicated for several participants to comprehend. This is why plan sponsors can benefit from a targeted, holistic approach to educating employees around key aspects of their retirement plans, including annuities as investment options.

Simple Education Needed

TIAA’s survey finds that 68% of not-for-profit sponsors believe financial education designed specifically for different age groups or life stages is effective. However, only 33% offer it.

“Plan sponsors can work with their providers to offer a comprehensive employee engagement program and identify services that may be most effective for their specific employee populations,” Pressman says.

Heaslip tells PLANSPONSOR that his firm has seen much engagement with digital tools, apps and videos that educate participants about everything from budgeting to investing in different products including annuities. He says leveraging technology and gamification has been particularly effective in getting employees to engage with their plans through digital quizzes, contests and competitive games they can play with their co-workers.

“One of the most successful games we’ve released recently is called Financial IQ,” Heaslip explains. “It’s kind of a friendly online contest that encourages and drives financial awareness through a peer-to-peer competitive setting. You test individuals’ financial IQ and that drives more awareness and engagement in the plan.”

He adds, “Roughly 70% of repeat players are women, and 29% were among Gen Y. We have a big uptake among the age 24 to 34 bracket.”

Nonetheless, human interaction is still key to any holistic educational program.

“We encourage plan sponsors to push for engagement, education and awareness through videos, digital tools and gaming as well as one-on-one advice,” Heaslip says.

Particular information about plan components like in-plan lifetime income options can also be broken down into digestible information on participant websites. “We have a lot of education and advice around what these guaranteed income products are,” Heaslip says. “What we’ve tried to do is simplify these products and explain how they work, because they can be confusing and they can have a somewhat misguided reputation. So, our tools and videos bring these products to life to help people understand what they offer and what their benefits are.”

More information about the first “Not-for-Profit Plan Sponsor Insights Survey” by TIAA can be found at tiaa.org.

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