Data & Research November 9, 2021

Competition for Talent Likely to Increase in 2022

As many as one in three workers say they are set to retire or considering leaving their current role in the next 18 months, according to a new survey from Principal Financial Group.

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A third of U.S. workers are considering a job change or retirement in the next 12 to 18 months, signaling the continuation of a tight labor market in 2022, according to a survey released today by Principal Financial Group. The survey results suggest employer benefits and retirement plan options will play a role in workers’ decisions.

According to the survey, 12% of workers are looking to change jobs, 11% plan to retire or leave the workforce, and 11% are on the fence about staying in their job—showing 34% of workers are unsettled in their current role. Employers echoed the findings, with 81% concerned about increased competition for talent.

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“We see from this survey and others this year that benefits continue to play a crucial role for workers. It’s possible that inflation has changed that somewhat, with people needing a bit more income for daily expenses. Overall, however, you’ll see from the survey that almost as important as pay is ‘feeling valued in the workplace,’” Sri Reddy, retirement and income solutions senior vice president, tells PLANADVISER. “How can employers show they value their workers? In large part, through robust benefit plans that show they are taking care of them now and into the future. Things like a strong company match, financial wellness resources and working with employees to improve their overall sense of financial security can all contribute to employee satisfaction.”

What Job Changers Want

Workers responding to the survey identified a strong focus on retirement planning and security when making employment decisions. More than three-quarters (77%) said the COVID-19 pandemic has driven them to focus more on saving for retirement. When evaluating new job opportunities, 91% thought an employee match was the most important retirement plan feature, 80% said eligibility, 74% said vesting requirements for company match, 73% said investment options on offer and 70% withdrawal options at job change or retirement.

“The ranking made sense to us in terms of workers looking for immediate value in retirement plans,” Reddy says. “An employee match and eligibility for a plan are near-term indicators of an employer being competitive in its retirement plan offering. Investment options, as well as withdrawal options, also ranked high, but these factors are generally seen as being years in the future for job hunters, and so may not be as pressing. That said, vesting requirements, investment options and withdrawal options all have a major impact on long-term savings. It’s up to the plan sponsor, and recordkeepers, to explain the importance of these features in creating long-term wealth.”

Retirement plan sponsors appear more focused on meeting workers’ retirement savings needs. The survey showed that 67% of plan sponsors intend to focus on “retirement planning education” in 2022, up from 48% this year. Meanwhile, more than half of workers considering a job change say they would roll over their current retirement plan to an individual retirement account (IRA) or to their new employer’s retirement plan.

Economic Optimism Declines

The survey showed a sharp decline in economic optimism among consumers, a contrast to the first half of 2021. In the third quarter, economic optimism for the next 12 months among workers dropped to 18% from a high of 32% in the second quarter—the strongest sentiment since surveying began in the third quarter of 2020. Meanwhile, retiree optimism fell to 17% from a high of 34%.

The declines come as consumers face rising prices from inflation. Both workers and retirees noted increased spending on areas including groceries (79% for workers; 85% for retirees), gasoline (75% for workers; 74% for retirees), home repairs (52% for workers; 42% for retirees), and dining out (49% for workers; 52% for retirees). According to the survey, people are also holding off on spending on home repairs, travel and purchasing a vehicle.

“It is a confusing time for many consumers. On the one hand, we seem to be managing through the pandemic with success. There is work for many people who are looking for it. The stock markets continue to show strength, which in turn helps bolster retirement savings,” Reddy says. “On the other hand, inflation is cutting into everyday expenses and—as the survey shows—impacting both workers and retirees. Meanwhile, the real-life impact of supply chain issues has people on edge. In that sense, we were not surprised to see the dip in optimism from earlier this year. It will be interesting to see how spending goes during the holiday shopping season. If people can spend enough without overdoing it, we should be able to maintain a balance of strong consumer spending while keeping retirement savings intact.”

The Markets November 8, 2021

J.P. Morgan: Doing Well and Doing Good Are Compatible

Historically, investors tended to consider ESG factors either to increase risk-adjusted returns (doing well) or to achieve sustainable outcomes (doing good). A new analysis suggests there is no meaningful trade-off between the two when investing in public markets.

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J.P. Morgan Asset Management has published an update of its long-term capital markets assumptions in the form of an extensive new report that, in addition to making baseline economic assumptions about the next five to 10 years, presents various thematic articles on specific, current trends.

Among these is a close look at environmental, social and governance (ESG) investing, particularly how institutional investors in the United Sates are warming to ESG approaches and their potential role in investment processes and decisions.

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As the report explains, interest in sustainable investing is growing globally among a wide range of market participants. While some investors have long been motivated by environmental or societal objectives, others are seeking new financial opportunities in the companies that stand to benefit from rapid changes in consumer preferences, policy and regulation, spurring further interest in sustainable investing. All this to say: Grappling with ESG investing in today’s marketplace is a potentially challenging affair that brings with it substantial opportunities.

According to J.P Morgan’s analysis, in general, investors tend to consider ESG factors either to increase risk-adjusted returns (which the report calls “doing well”) or to achieve sustainable outcomes (i.e., “doing good”). In their analysis of this bifurcated framework, J.P. Morgan’s analysts find no meaningful trade-off between doing good and doing well when investing in public markets.

“A sector-neutral equity portfolio is not hindered, relative to its benchmark, by a skew toward ESG leaders, defined as companies that perform well on J.P. Morgan Asset Management’s ESG scoring framework,” the report explains. “In fixed income, while there is evidence that higher-ranked ESG issuers pay lower coupons, investors are likely to be compensated with lower default risk.”

J.P. Morgan’s analysts say there are two channels through which sustainable business practices can help companies outperform their peers and generate higher returns for investors. The first channel is market forces, the report explains, where the costs of nonsustainable practices play out and can hurt a company, either because it suffers the effects of regulation or because it fails to meet consumer preferences. The report suggests this “market forces effect” will be persistent through time.

The second channel is via increased demand—and thus higher prices—for these companies’ shares relative to their lower-scoring peers. The report calls this a “repricing” effect, suggesting it may likely be transient as market participants price in ESG considerations more accurately.

At a high level, the report states, total return results will vary depending on which of the many ESG rating systems are being used. As such, across both equities and fixed income, choosing an ESG rating system that produces reliable ESG “scores” is a critical choice in sustainable investing.

“Investors who want their portfolios to have a minimum ESG score might be tempted to avoid certain markets or regions, such as the emerging markets,” the report notes. “However, our analysis shows that because of the wide variation of scores in every region, a better portfolio solution is one that optimizes first on region and then within a region on ESG score.”

Similarly, according to J.P. Morgan, investors should not be discouraged from investing in private markets just because ESG data can sometimes be harder to obtain.

“Indeed, turning away from private markets can be a real loss because these markets are increasingly providing portfolios with solutions for attaining income, diversification and alpha,” the report concludes. “ESG information can be less transparent in private markets, requiring more research and investigation. But investment in private markets not only can help achieve return objectives, it is also likely to be essential for achieving sustainable outcomes as private markets grow in size and importance.”

The analysis suggests investors may again wish to adopt a two-step approach: The first step is choosing an optimal mix of asset classes based on traditional measures of risk and return, and the second is tilting the portfolio toward ESG leaders or “improvers” within each asset class. The report says the second step is likely to be more difficult in private markets.

The report further concludes that incorporating ESG considerations does not come at a financial cost—unless investors reduce their opportunity set to assets whose ESG characteristics are easy to score and for which scores are readily available.

“As we’ve discussed, investors will want to consider different approaches for different asset classes, for example, by focusing on material ESG risk when assessing bonds, while considering both risks and opportunities in the context of equities, while taking into account the important role played by rating agencies and scoring systems,” the report says. “Given that ESG investing does not come at a cost in terms of performance, it can be seen as a ‘free option’ to align portfolios with investors’ values, as well as to prepare portfolios for the impacts of potentially tighter environmental or social regulation.”

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