Home Offices Must Get More Active In Staff Succession Plans

Troubling, many of the companies that say they have formal succession planning programs in place in truth dedicate very few hard-dollar resources, if any, to help.

The latest LIMRA Industry Trends publication suggests 63% of financial services companies surveyed have developed or are in the process of developing formal succession planning programs for financial professionals who sell their products and services; another 18% offer services to help financial professionals develop a plan themselves, according to LIMRA researchers.

Prior LIMRA research has shown that the two most important factors advisers think about when considering a succession plan are “identifying the right successor” and “feeling comfortable in that successor’s ability to maintain relationships with their clients.” Yet, most companies avoid playing matchmaker and instead merely offer basic assistance with identifying potential candidates and running them through a screening process, LIMRA warns.

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LIMRA data also shows that a little more than one-quarter of financial professionals are age 55 and older.

“For many of these individuals considering retiring or taking a less active role in their business, their clients expect a seamless transition from one financial professional to the other,” LIMRA researchers note. “In fact, 99% of clients believe the financial professional they work with has a succession plan in place. In reality, only half of financial professionals report that they are prepared for a transition.”

Additional findings show there is still a significant percentage (20%) of companies that either have not decided the role of the home office in helping financial professionals with succession planning or believe it is the financial professionals’ individual responsibility to do their own planning. Troubling, many of the companies that say they have formal succession planning programs in truth dedicate very few hard-dollar resources, if any, to help.

“Even still, just one in five eligible financial professionals takes advantage of company programs when they are available,” LIMRA warns. “One company surveyed mandates their financial professionals have a plan in place, while a few others offer financial incentives such as providing an allowance to develop a plan; paying the initial enrollment in Financial Professional Transitions Equity Management System; offering a higher buyout for a financial professional’s practice if s/he has a plan in place; or financing a practice purchase. Because most companies take a passive role in helping financial professionals with business transition planning, organizations that offer service and support to assist in developing what is typically a complex and time-consuming task will differentiate themselves from those companies who believe it is not their business to help.”

Half Say They Would Save Less If Retirement Tax Incentives Were Reduced

Forty-six percent say they would “save less” or “stop saving” in their 401(k) if the tax deferred status of their plan was taken away, according to the Wells Fargo/Gallup Investor and Retirement Optimism Index.

According to the Wells Fargo/Gallup Investor and Retirement Optimism Index, asset owners are feeling about as optimistic today as they did back in September 2000, when the index set its as-yet-unbroken record high of +147.

The strong optimism for the third quarter stands despite real concern, only recently abated, that Congressional tax reform efforts might reduce or even eliminate tax incentives and favorable deferral rules for employer-sponsored retirement plans. According to the index results, three-quarters of non-retired investors in the survey have a 401(k) plan, and more than half (57%) say the most valued feature of their plan is the “match contribution from their employer.” The next most valued feature is the tax deferral on the money they contribute, which was noted by 33% of respondents.

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“The 401(k) plan has evolved into the greatest savings and investment vehicle that Americans have today to steadily build a retirement nest egg,” says Fredrik Axsater, executive vice president and head of strategic business segments at Wells Fargo Asset Management. “Pre-tax savings has a direct impact on the level of savings that people achieve, and we have to recognize this as the country contemplates changes in tax policy.”

Forty-six percent say they would “save less” or “stop saving” in their 401(k) if the tax deferred status of their plan was taken away.

Confusion abounds over retirement income

One key finding from the index shows nearly all non-retired investors (98%) “strongly agree” or “somewhat agree” that “it is important to have a guaranteed income stream in retirement, in addition to Social Security,” and yet, according to Axsater, there is confusion about how to get this additional income stream.

“Six in 10 either strongly agree or somewhat agree that they want a guaranteed monthly income stream that lasts as long as they need it, even if that means giving up access to some of their money,” he says. “But at the same time, 75% of non-retired investors either strongly agree or somewhat agree that they want the freedom to spend their money as they want in retirement, even if that means they may run out of money too soon.”

Investors also are unsure about what products are available to provide them with a guaranteed income throughout retirement. In addition, they are unsure how much money they would need to structure various levels of income for various amounts of time.

“Setting a retirement savings goal—even if it’s an estimate—is a critical step in the process of managing one’s retirement outcome, but it’s hard to do,” Axsater notes. “Further, it becomes even harder to try to estimate what one will harvest from savings each year of living in retirement. This is where our industry must come up with solutions that allow people to envision their savings needs and what that translates to in terms of annual draw down in retirement.”

Interest grows in social impact investing

Wells Fargo and Gallup researchers asked investors about their views on “social impact investing,” which was defined for respondents as “choosing investments based on the effect they have on things like the environment, human rights, diversity and other social values, in addition to investment returns.”

Women express more interest in investing in social impact investments, with 39% saying they are “very interested” or “somewhat interested,” as compared with 26% of male investors. The data shows younger investors appear more interested in this type of investing, with 39% of investors aged 18 to 49, “very interested” or “somewhat interested,” compared with 29% of investors age 50 and older.

Overall, 44% of non-retired investors with a 401(k) say they would “definitely” or “probably” put money in social impact investments if they had the option in their plan. Moreover, 34% of non-retired investors with a 401(k) say that including social impact investments as an option in a work-place retirement plan would make them feel “more positively” toward their employer. Of those non-retired investors who would feel more favorably about their employer, 53% are women and 47% are men.

In the Wells Fargo/Gallup survey, investors were asked to rate their interest in each of three specific social impact themes. Seventy-eight percent of investors say they are “very interested” or “somewhat interested” in protecting the environment, 76% are “very interested” or “somewhat interested” in doing social good—such as promoting diversity and improving education—and 74% are “very interested” or “somewhat interested” in focusing on responsible corporate governance, including “ethics” and “behaviors.”

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