Data & Research July 21, 2015

Advisers Make Investors More Confident About Retirement

However, only 26% of Americans surveyed report they work with an adviser.
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Americans are missing out on a great opportunity to work with advisers, Northwestern Mutual says in its survey report, “2015 Planning & Progress Media Study: The Value of Financial Advisers.”

Those who have partnered with an adviser are far more confident about their financial security in retirement—yet just one-quarter, 26%, of U.S. adults rely on an adviser when making financial decisions.

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It is not surprising, then that only 40% of U.S. adults have set financial goals, 30% regularly monitor their progress against their financial plan, 26% have identified strategies to meet their goals, 18% have sought advice from a financial adviser, 17% have established an ongoing relationship with an adviser, 12% have developed a written financial plan to address their goals on their own, and 8% have developed a written plan to address their goals with an adviser. Only 9% strongly agree that their plan could withstand market cycles.

Among the 40% who have set financial goals, the reasons appear to be reactive rather than proactive, with 59% saying they received a cash windfall, 38% saying they were challenged with an unexpected financial emergency, and 23% citing a change in either their or their spouse’s employment.

Americans are misinformed about how much they need to have saved in order to work with an adviser, with 30% saying one needs a certain level of assets, 27% saying they do not think they could afford one, and 19% saying it hinges on meeting an adviser they could trust.

NEXT: Working with an adviser

Among those who do have an adviser, the majority, 73% assessed the adviser’s experience and knowledge, 44% considered their reputation, and 34% looked into their client service.

Seventy-two percent of investors who use a financial adviser consider themselves disciplined or highly disciplined in their financial planning, compared to 46% of those without an adviser, and 89% say they feel financially secure or very financially secure, compared to 62% of those without an adviser. Seventy-nine percent of pre-retirees who have an adviser expect to be happy in retirement, compared to 65% of those without an adviser.

Investors with a financial adviser are also more focused on saving, with 76% describing themselves as savers, compared to 62% of people without an adviser. Sixty-four percent of those with an adviser say they have more savings than debt, compared to 39% of those without an adviser.

Another benefit of working with an adviser is accumulating a more diversified portfolio. Seventy-seven percent of those with an adviser have a savings account, compared to 61% of those without an adviser; 61% have an individual retirement account, versus 23% of those without an adviser; 49% are invested in stocks, versus 17% without; and 48% are invested in mutual funds, versus 11% without.

Americans definitely need the help of advisers to achieve their financial goals, says Steve Mannebach, vice president, field growth and development at Northwestern Mutual. “Financial planning is less about how much you have in assets and more about maximizing the assets you do have,” he says. People should not “let assumptions get in the way of the opportunity to reap the significant proven benefits of working with an adviser.”

Northwestern Mutual’s report is based on an online survey of 2,010 adults that Harris Poll conducted between January 12 and January 30, 2015. The report can be downloaded here.

Data & Research July 21, 2015

Health Care Providers Very Attuned to Retirement Readiness

Sixty-eight percent say helping employees accumulate income for retirement is the primary goal of their plan.
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Health care providers are becoming increasingly attuned to the need to prepare their workers adequately for retirement, a survey by Transamerica Retirement Solutions and the American Hospital Association found. Sixty-eight percent of health care providers say “helping employees accumulate income for retirement” is the primary goal of their plan, up from 65% in 2014.

Asked about the best indicator of plan success, employees’ retirement readiness now surpasses participation rates, with 41% citing retirement readiness, up from 35% in 2014, and 39% pointing to participation rates, down from 48% in 2014.

Asked about their challenges and concerns about running the plan, 81% of health care retirement plan sponsors said motivating employees to save adequately, and 38% said helping participants to invest wisely. Administrative challenges are also a source of unease, with 55% saying managing the workloads of human resources staff, 41% pointing to keeping up with regulatory changes, and 33% citing meeting fiduciary responsibilities as concerns.

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When asked about their concerns about plan outcomes, 53% said they are worried about the impact of rising health care costs on their retirement plans, and 51% said they are anxious about employees delaying retirement because they are financially unprepared.

NEXT: Provider support

The majority (54%) of health care retirement plan sponsors say they receive a great deal of help from their providers, though that is down from 64% in 2014.

Asked what initiatives they have taken to help their participants, 90% say holding one-on-one employee meetings, 73% say offering a match, 67% say conducting group employee meetings, 59% say offering convenient ways to increase contributions, 51% say offering investment advice or managed accounts, 48% say implementing automatic features and 44% say consolidating retirement assets.

Overall health care providers appear to be doing right by their participants, Transamerica says. “Hospitals and other health care employers have become increasingly attentive to the retirement readiness of their participants in recent years,” says Brodie Wood, senior vice president of not-for-profit markets at Transamerica Retirement Solutions.

The most common type of retirement plan that health care providers offer is a 403(b) plan, implemented by 88% of sponsors, followed by: a 457(b) plan (72%); a 401(a) plan (41%); a 401(k) plan (38%); and a 457(f) plan (38%). Offering a Roth option is also trending up, with 33% of 403(b) sponsors offering this feature, up from 21% in 2014.

Ninety percent of health care providers offer some type of employer contribution, with 75% using a matching contribution. However, where health care providers are falling down on their retirement plans is the level of the employer match. The most commonly cited match formula last year was a 50-cent contribution up to 6% of pay for a total match of 3%, cited by 24% of sponsors. In 2015, that fell to 12%. Correspondingly, a lower employer match formula of 50 cents up to only 3% of pay for a total contribution of 1.5% increased to 23% this year from 15% in 2015.

NEXT: Use of automatic features

Use of automatic enrollment and automatic escalation is trending up, with 51% of health care retirement plan sponsors automatically enrolling their participants, up from 40% in 2014, and 47% automatically escalating their deferral rates, up significantly from 22% in 2014. However, the majority of sponsors (62%) use a default deferral rate of 3% or less, up from 48% in 2014. Asked why they default their participants’ contributions at such a low rate, 44% said they are concerned about their employees’ living expenses, and another 44% said their consultant or adviser recommended a default rate of 3% or less.

The most common default instruments are target-date funds, used by 68% of sponsors, followed by custom model portfolios (16%) and stable value funds (8%).

Participation rates in health care retirement plans is high, 82%, up from 72% in 2014. Among non-highly compensated employees, it rose to 78% in 2015, up from 67% in 2014, and among highly compensated employees, it dipped slightly down, to 95%, compared to 98% in 2014. Deferral rates remained constant, at 6%, the same as in 2014. Average balances ticked downward, to $43,900, compared to $45,000 in 2014.

NEXT: Onsite representatives and advisers

Nearly two-thirds (64%) of health care organizations surveyed use the services of an onsite representative for: one-on-one meetings with employees (98%), helping employees understand the plan (91%), improving employees’ appreciation of the plan (79%) and enhancing participants’ retirement readiness (77%).

The vast majority, 84%, of health care retirement plan sponsors work with an adviser or consultant who works either primarily (32%) or exclusively (28%) with retirement plans. Seventy-two percent of these advisers meet with their health care sponsors every quarter.

Advisers provide many services: reviewing investment options (cited by 95% of sponsors), helping draft the investment policy statement (88%), conducting investment provider due diligence (83%), explaining provider fees (76%), handling fiduciary responsibilities (64%), making plan design recommendations (53%) and monitoring service providers’ duties (51%).

As to how advisers are paid, fewer (40%) charge hard-dollar fees in 2015, compared with 2014 (46%). Correspondingly, 33% of advisers charge hard-dollar fees in 2015, up from 27% in 2014. And they are charging higher fees, with the percentage of those charging less than five basis points declining from 50% in 2014 to 42% in 2015, and those charging between five and 10 basis points increasing to 42% in 2015, from 29% in 2014.

Transamerica’s comprehensive survey, "Retirement Plan Trends in Today's Health Care Market 2015," was comprised of 100 questions and conducted online in January 2015 among 112 hospital administrators and chief financial officers. The full report can be downloaded here.

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