Data & Research February 16, 2011

Expecting the "Unexpected"

Americans may not be preparing for the unexpected events that can interfere with retirement plans, according to a MetLife Mature Market Institute study.
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The study categorized respondents into ten types of savers:

  • Snoozers who don’t think about future risks at all.  Future risks are not on their radar screens.
  • Active Resisters who “choose to snooze,” or choose to ignore information about future risks.
  • Immobilized Worriers who understand future risks, but whose worry prevents them from acting.
  • Oversleepers who are late in their thinking and planning and may regard their decision or action windows as “come and gone.”
  • Wood Knockers who think about the unexpected but rely on hope; they choose optimism.  Somehow, things will “work out.”
  • Plan B-ers who hold on to a contingency plan, or the loose idea of one, as a protection against trouble ahead.  A Plan B may be a “plan” in name only.
  • Realists who use the lessons of past experience to think about the future.
  • Stewers and Brewers who take a while to make decisions.  Stewers may fuss and fret, while Brewers play with ideas and planning strategies.   
  • Compromisers who think about both today and tomorrow and balance their current needs against
    future risks.
  • Preemptive Planners who strive to preempt future risks, or at least their consequences.

“We found that actively preparing for the surprises that inevitably come our way is the most successful approach to retirement,” said Sandra Timmermann, director of the MetLife Mature Market Institute. “Knowing you will have guaranteed income sources available and access to emergency funds is key.  To maximize income in retirement while maintaining liquidity, consider options beyond low-yielding savings accounts.  Some annuity and home equity products enable you to have access to cash while optimizing returns at the same time.  Ultimately, the capacity to withstand the unexpected is dependent on the ability of people to imagine, anticipate and prepare for the circumstances that are often beyond their control.”

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On average, MetLife said survey respondents dedicated 15 hours in the past six months on gathering information or planning for retirement, and one in five spent no time on planning. Saving stood out as the most common item among survey respondents as “the one thing” they would do differently; many would start saving earlier (29%), some would save or invest more (12%), and others would make better investments (4%).  

Only two in ten respondents report that they are very confident they will have enough money to live comfortably if they or their spouses/partners live to 85+ years of age, and another six in ten (58%) are only somewhat confident, the survey found. The remaining 22% are not confident in their retirement security.  More than two-thirds (68%) of those who did feel at least somewhat confident about a comfortable standard of living and a long life identified a guaranteed stream of income as a reason for their confidence, followed by 51% who identified sufficient savings as contributing to their confidence.

Produced in conjunction with the Scripps Gerontology Center at Miami University, the survey was based on in-depth personal interviews with 50 pre- and post-retiree, couples and individuals, and a nationally representative online survey of 1,007 respondents age 50-70.

Compliance February 16, 2011

SPARK Examines SEC Fiduciary Study

The SPARK Institute hosted a Webinar Wednesday that discussed how “harmonization” would work if broker/dealers (B/Ds) and registered investment advisers (RIAs) were to work under a uniform fiduciary standard.
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SPARK invited attorneys from Dechert, LLP, to present their “Path Toward Implementation” report. In the report, Geoffrey Kenyon, Michael Sherman, and Susan Camillo recommend a course of action if the Securities and Exchange Commission (SEC) decides to move forward with its proposal for a uniform fiduciary standard (see “SEC Report Leaves Unanswered Questions”).

Dechert said the SEC should identify specific examples of material conflicts of interest, prohibit certain conflicts, and facilitate uniform disclosure as to other conflicts. In terms of disclosure, the SEC should consider a “general relationship guide” akin to the new Form ADV Part 2A to cover all retail customer relationships, specific transaction-based disclosures/consent requirements for transactions that the SEC believes raise particular customer protection concerns, and guidance or rulemaking on how B/Ds should fulfill the uniform fiduciary standard when engaging in principal trading.

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The outline for harmonization included six recommendations:

1. Advertising and other communications: substantive advertising and customer communication rules and/or guidance, as well as harmonizing internal pre-use review requirements for advertisements.

2. Use of Finders and Solicitors: this would provide additional guidance or harmonize existing regulatory requirements.

3. Supervision with a focus on whether harmonization would facilitate the examination and oversight.

4. Licensing and registration of firm: specifically whether disclosure requirements in Form ADV and Form BD should be harmonized where they address similar issues and whether investment advisers should be subject to substantive review prior to registration similar to FINRA registration.

5. Licensing and continuing education requirements for persons associated with B/Ds and investment advisers.

6. Consider modifying the Advisers Act books and records requirements, by adding a general requirement to retain all communications and agreements related to an adviser’s “business as such.”

The attorneys noted that SEC Chairwoman, Mary Schapiro, has emphasized that the report was nothing more than a first step, and with the Commission’s extremely strained resources, they questioned if the proposal will ever be finalized at all.   

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