Finance’s Reputation Problem Impacts Auto Retirement Plan Success

Industry pros know there are big differences between financial services providers in termsof  business models and their willingness to embrace fiduciary best practices—but many non-investors see a monolithic industry sharing a set of common reputation problems.

New survey data shared by The Pew Charitable Trusts takes a deep dive into the perspectives of nearly 1,000 workers who do not have access to a retirement plan on the job, with the goal of learning how trustworthy they find information from their primary financial institution and their human resources colleagues.

According to John Scott, director of The Pew Charitable Trusts’ retirement savings project, and Henry Watson, an associate with Pew’s research review and support team, the results suggest “an association between distrust in financial institutions and the likelihood that workers will choose to stay in a retirement savings plan if enrolled automatically.”

The Pew survey found that nine in 10 of these workers without access to a workplace retirement plan said they find information from their primary financial institution “somewhat” or “definitely” trustworthy. A little more than seven in 10 said the same about information from financial institutions in general or their human resources representative. Still, the researchers warn, substantial shares do not find information from these sources trustworthy.

“The survey found that white workers were somewhat less likely to distrust financial information than Hispanics or other nonwhite respondents,” the researchers note. “Among white workers, only 7% said information from their primary financial institution is ‘somewhat’ or ‘definitely’ untrustworthy, compared with 17% of Hispanic individuals and 19% of other respondents.”

Previous Pew research shows that Hispanics are among those least likely to have access to workplace retirement plans, making their somewhat greater apprehension toward financial institutions of particular concern. Separately, according to Pew, men are more distrustful of financial institutions in general than women, as 33% said these institutions were definitely or somewhat untrustworthy, compared with 22% of women.

Of note for the PLANADVISER readership, respondents who said they lacked confidence in financial institutions generally were more likely to say they would “probably” or “definitely” choose not to participate in an employer-sponsored plan if automatically enrolled. About four in 10 of those who expressed distrust in their primary financial institution said they would opt out, according to the Pew survey, with 12% saying they definitely would do so.

Survey respondents were asked separately about whether they would take part in a hypothetical automatic-enrollment savings plan sponsored by their state, rather than their employer. Among those who said they distrust information from their primary financial institution, 13% would opt out and 23% were unsure, somewhat more than the 9% and 15%, respectively, of those who said they trust this institution. More than six in 10 would either stay in the program at the default contribution rate or increase that rate.

The Pew researchers conclude these results “should encourage auto-IRA program designers,” although some workers may require special outreach to specifically address their concerns.