Data & Research May 20, 2015

Generation X Most at Risk in Planning Study

A review of Northwestern Mutual’s 2015 Planning and Progress Study data shows Generation X has the poorest financial habits of all generations in the survey.
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Northwestern Mutual defines Gen X as Americans aged 35 to 49—suggesting this age group more than either their older or younger working peers is facing serious financial hardship and relatively poor financial decisionmaking.

In addition to comprising the majority of “informal” planners, Gen X has more “spenders” than “savers” compared to other generations and is the least likely to have more savings than debt. Other findings show nearly four in 10 (37%) Gen Xers “do not at all feel financially secure.” This is more than any other generation, even Millennials, Northwestern Mutual notes. Not surprisingly, almost a quarter (23%) are “not at all confident” that they will achieve their financial goals later in life.

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Northwestern Mutual finds a strong majority (66%) of Gen X expects to work past traditional retirement age due to necessity, with two in 10 (18%) believing they will never retire. The vast majority (82%) of Gen Xers who anticipate needing to work past the age of 65 feel they will need to do so because they will have insufficient retirement savings. Like other studies, this one seems to highlight a troubling disparity between workers’ hopes to stay in the workforce longer as a means to make up for a lack of retirement savings, and their limited ability to do so. Put simply, many people are driven out of the workforce earlier than they would like due to health reasons or employability problems.

“It is not easy being X,” says Rebekah Barsch, vice president, financial planning, Northwestern Mutual.

She points to the long list of challenges that have persisted for Gen Xers in the workforce: “From weathering a number of economic cycles, this group is juggling home mortgages, educational debt and lifestyle needs. Figuring out how to plan for the future can be daunting when faced with multiple demands that require real-time attention.”

Next: Gen X is facing a myriad of financial pressures.

While a lack of discipline is clearly a substantial factor, the financial pressures impacting Gen X may also be a function of life stage, Northwestern Mutual says. A significant portion of this segment is squarely in the "sandwich” generation—as more than 4 in 10 (44%) live with children under 18 and over a quarter have a parent or other older relative in the household.

“Balancing personal financial priorities with the added demands of dependent care is likely to have implications on decision-making,” Barsch says.

Notably, Gen X is not blind to the realities of its financial condition. Two thirds (66%) of Gen X respondents acknowledge that their financial planning needs improvement and less than 1 in 10 (9%) consider their generation "very financially responsible." Moreover, when asked how they would allocate a $10,000 windfall, Gen X, more than other generations, opted for debt repayment—suggesting an interest in tackling financial challenges.

But interest in tackling a problem doesn’t always mean success, the study concludes. Despite citing “insufficient savings to retire comfortably” as a leading financial fear, one third of Gen Xers (34%) do not know how much income they need to retire and nearly half (47%) have not discussed retirement planning with anyone. Gen X is also less likely than any other generation, even Millennials, to have sought guidance from an adviser.   

“The good news is that Gen X is in its earning prime and has a relatively long runway to retirement,” Barsch adds. “Overcoming perceived barriers and inertia in order to develop a strategy today can vastly improve the outlook for tomorrow.”

Compliance May 20, 2015

SEC Votes to Propose ‘Sunshine Act’ Disclosure Reforms

The Securities and Exchange Commission (SEC) took a big step Wednesday towards modernizing the reporting and disclosure practices of registered investment advisers and fund companies, voting to propose a number of key regulatory changes.
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The rule changes have been proposed according to the provisions of the Government in the Sunshine Act, which instructed the Securities and Exchange Commission (SEC) to gather industry and public feedback on potential changes impacting the ways investment companies and advisers collect and disclose information to clients.

SEC Chair Mary Jo White led the meeting and suggested the important question at hand was whether the SEC should take the first formal step to require investment companies and advisers to provide additional information concerning their operations and the maintenance of performance records, among other things. Specifically, White and other top SEC staffers voted to propose new Form N-PORT and Form N-CEN under the Investment Company Act of 1940; new rule 30e-3 under the Investment Company Act; amendments to Regulation S-X; and other rules and forms under the Investment Company Act, and rescinding existing Form N-Q and Form N-SAR.

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The SEC staff also voted to propose amendments to Form ADV under the Investment Advisers Act of 1940, along with amendments to rule 204-2 (the Books and Records Rule) and certain other rules set out under the Advisers Act. These latter two proposals may have the most direct impact on the registered investment adviser (RIA) community, based on discussion prior to the vote, but all of the changes are anticipated to impact advisers at some level. 

The amendments to Form ADV would fill certain data gaps with respect to separately managed accounts, White noted, while the recommend amendments to the Books and Records Rule would require registered advisers “to keep more information on the calculation and distribution of performance information, among other things.”

Next: How the reforms can impact the disclosures of data and pricing.

Summarizing the changes presented in the proposed rulemaking language, White said she believes the reforms “will require that additional information be provided about funds in certain key areas, including data related to derivatives, securities lending activities, liquidity and pricing of portfolio instruments, and aspects of exchange-traded funds.” She suggested this information is vital to assessing the risks of evolving fund activities and their potential impact on investors.

Beyond this, White said the recommendations “will require other new categories of information to be filed by RIAs, particularly with respect to separately managed accounts and the assets and derivatives held in those accounts. Approximately 73% of RIAs manage a wide variety of client assets in separately managed accounts, and the Commission needs a wider and deeper lens to assess possible risks.”

The recommendations would also modernize how data is transmitted to shareholders by providing investors with shareholder reports and portfolio information on fund websites while still preserving the ability of investors who prefer to receive paper reports to do so, White said.

The timing of any comment period deadlines or anticipated effective dates for any final rulemaking remains unclear, but based on comments from SEC staffers the rulemaking language will emerge soon and bring greater clarity on those points. A summary of White’s comments is available here.

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