Data & Research April 19, 2018

Retirement Planning for Women Should Consider Differences From Men

Women may face lower pay, more work disruptions, higher longevity and higher retirement health care costs than men, a study points out.

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Women make less money and live longer than men, yet they accumulate less wealth to fund their longer lives, notes a study from Merrill Lynch in partnership with Age Wave.

The study shows that women are confident—equally as confident as men—in most financial tasks, such as paying bills (90%) and budgeting (84%); however, when it comes to managing investments, their confidence drops significantly. Only 46% of Millennial women reported having confidence, more than half of Gen X (52%) and Baby Boomers (54%) said the same, and 60% of women in the Silent Generation reported having confidence in investing.

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Forty-one percent of women report that their biggest financial regret is not investing more. Fifty-nine percent of women report that they are not doing a good job using investing as a way to pursue their financial goals. Women say that not having the knowledge to invest is their number one barrier (60%), followed by not having the confidence (34%). All women surveyed wish they had more education around money and finance, with 87% saying basic financial management should be a standard part of the high school curriculum.

For the women who do invest, however, most (77%) report feeling they’ll be able to save enough money to last them the rest of their lives.

However, 70% of women surveyed contend that the financial services industry has traditionally catered to men. Financial planning models have defaulted to men’s salaries, career paths, family roles, life spans and preferences. As an example, the study report says, retirement calculators do not allow for planned or unplanned breaks from the workforce—breaks taken more frequently by women—to raise children or care for aging family members.

In addition to knowledge about investing, women need education about their longevity. According to the report, longevity needs to be a factor in everyone’s financial planning, but far more so for women, who, on average, live five years longer than men. Nearly two-thirds of women (64%) say they’d like to live to 100, yet most (60%) fear they will run out of money if they do live that long. Forty-two percent are afraid they will run out of money by age 80.

The report says women’s fears are not unwarranted. A prior Merrill Lynch/Age Wave study found the typical retirement costs $738,000, yet only 9% of American women have $300,000 or more saved. When asked, “How far into the future have you planned for financially?” one in four women ages 18 or older, and as many as 30% of women ages 30 to 44 say they have not planned at all for their future.

The study report also points out that women’s life journeys are also different than men’s. “Women’s life journeys through early adulthood, parenting, elder caregiving, retirement and spousal caregiving necessitate financial planning for lifelong security and peace of mind,” the report says.

Other financial challenges women need to plan for are work interruptions and health care costs. Work interruptions for providing care and part-time employment can limit access to employer-sponsored retirement plans. The study estimates that women will have earned a cumulative $1,055,000 less than a man who has stayed continuously in the workforce, due to the accumulated lifelong pay gap and workforce interruptions The report suggests women could get a retirement bonus if they invest in their employer-sponsored retirement plan early and delay retirement.

Age Wave estimates that the average woman will have 39% higher health costs than the average man in retirement, paying an additional $194,000. This is because women retire earlier, live longer and are more likely to spend years alone and have to rely on formal long-term care in their later years.

The report suggests that the financial industry, employers and policy makers, among others, can make an impact by respecting women’s different life journeys and longer life spans, acknowledging they are not all the same, encouraging financial discussions, facilitating financial education and confidence, and demanding equality in pay and promotions.

The survey was fielded October 25 through November 22, 2017, among 3,707 respondents, including 2,638 women and 1,069 men older than 18, across all geographies and education, income and asset levels. The survey report may be downloaded from here.
Compliance April 18, 2018

SEC Proposes Revised Conflict of Interest Standards for Brokers and Advisers

It will take time for the fully detailed picture to emerge, but the SEC voted late Wednesday to propose new conflict of interest standards for how broker/dealers and financial advisers label themselves and sell products under various fee structures to retail clients.

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The Commissioners of the U.S. Securities and Exchange Commission (SEC) voted by a four-to-one majority to propose a multi-pronged set of new impartial conduct standards and disclosure requirements that will apply to both financial advisers and broker/dealers serving “retail clients,” which in the eyes of the SEC includes retirement plan participants.

A note of caution—the actual text of the proposed rulemaking is hundreds of pages long and was still just emerging at the time of the publication of this story. However, as it was explained during an SEC meeting, the new rulemaking will center on several basic items.

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First, the proposal will “mandate clearer disclosures specifically addressing how broker/dealers and investment advisers identify themselves, and what terms they use to do so.” According to SEC staff, the proposal will require both advisers (who are fiduciaries and will remain fiduciaries under the current and proposed SEC rules) and broker/dealers (who are not necessarily fiduciaries) to provide all retail investors with a standard disclosure document less than four pages in length, highlighting the scope of services offered, legal and regulatory standards that apply, all fees the investor will pay, and disclosing conflicts of interest. This document is already being referred to as the CRS disclosure, short for “customer relationship summary.”

Second, the “Regulation: Best Interest” section of the proposal will “raise the standard for broker/dealers to make it clear that they have to keep customer interests first when serving retail clients.” And lastly, SEC staff explained, the proposal will recast the fiduciary standard under the Advisers Act, “in order to reaffirm and clarify the SEC’s views on the standards of conduct applicable to investment advisers, who are fiduciaries.”

This explanation was proffered by SEC chair Jay Clayton and his staff. Commissioner Kara Stein was harshly critical of the proposal being voted on. She insisted that the three-pronged proposal would do very little to change the status quo of retail investor confusion on this important topic. The other commissioners also voiced various concerns and projected that the final rule will likely look different than this first proposal. 

For their part, the SEC staffers were emphatic that, under the new proposal, advisers and B/Ds alike will not be able to place their own financial incentives ahead of client interests. Among other avenues, the proposal will seek to require non-fiduciary brokers to more directly consider the cumulative costs associated with their commission-based sales to retail clients—and to prevent and address any non-best interest churning or other behaviors that result in sub-optimal outcomes for retail clients.

While they did not directly mention the failed Department of Labor (DOL) fiduciary rulemaking effort, which would have gone even further to tamp down on investment industry conflicts of interest than the emerging SEC proposal, they did speak about the importance of alleviating investor confusion about the differences between “advisers” and “brokers,” and about who is a fiduciary in what circumstances.

According to the SEC staff, the new proposal will not favor commission or fee-based advisory or brokerage models, but will seek to improve the disclosure of what fee model is being used—and whether the relationship is “advisory or brokerage.”

Stakeholders are encouraged to review the proposals and submit comments, via https://www.SEC.gov/.  

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