Data & Research August 9, 2010

Survey Finds "Flash Crash" Caused by Issues Related to Market Structure

BlackRock, Inc. released research findings on financial advisers' perceptions of and impact from the May 6th market event known as the “Flash Crash.”  
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The survey, which was commissioned by the iShares Exchange Traded Funds (ETFs) business and conducted by Market Strategies International, found that the majority of advisers believe market structure issues were the primary driver of the sharpest single-day point decline in Dow Jones history.  

Advisers pointed to an overreliance on computer systems and high-frequency trading as the primary drivers that contributed to the extreme market volatility on May 6th. Advisers listed the use of stop-loss orders, the support of market makers and questions with exchange routing rules among the secondary contributors. 

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The survey also indicated that most advisers’ accounts were not impacted by the events of May 6th. Only about a quarter of advisers reported a stop-loss order at a significantly reduced value, the most common outcome of the “Flash Crash.” 

According to the survey, advisers are encouraged with the initial recommendations by the SEC to make the needed changes to market structure. Those surveyed endorsed the single-stock circuit breaker rule proposed by the SEC as one of the primary solutions to address the causes of the May 6th market decline, as well as placing trading audits, expanding the role of the lead market maker, and clearer inter-market routing guidelines to rectify market structure problems.  

With regard to the macroeconomic environment, the majority of advisers surveyed expect current market volatility will either increase or remain constant over the next six months, but anticipate another event similar to May 6th in the future, no matter what solutions are adopted.  

Regardless of the cause – economic or structural – advisers identified ETFs as the best investment vehicles to navigate a volatile market environment, followed by bonds and mutual funds. 

Data & Research August 9, 2010

Longevity Concerns High Among Retirement Savers

Half of employees (52%) believe they are behind in their retirement savings and a nearly equal number of workers (53%) are very concerned about outliving their retirement money, according to MetLife’s 8th Annual Employee Benefits Trends Study.

 

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A MetLife news release said 51% are also very worried about having to work full or part-time in retirement. Likewise, according to the study, 53% of employees of all ages are very concerned about being able to maintain insurance benefits received through their employers in retirement, while nearly six in ten indicate that they are very concerned with being able to afford health care in retirement – even those who assess their overall health as good or better.

The study found that 61% of workers have planned for 20 years or fewer in retirement even though, with a median retirement age of 65, half of the study’s respondents will likely live beyond 20 years, and some well beyond age 85.

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According to the study, 49% of those who have a retirement nest egg are interested in learning about how to protect their retirement income. Four in ten (40%) are interested in learning more about how they could use annuities as part of their DC plan, and 44% would like their employer to offer an annuity option in their 401(k), 403(b) and/or 457 plan.

When they retire, 55% of workers say that they’ll prefer to receive part of their nest egg for as long as they live rather than taking all of it in a lump sum, where only 9% strongly disagree with that statement (likely indicating that they prefer the lump sum), MetLife said.

According to the study, 70% prefer guarantees that offer stable but somewhat lower returns, compared to the 30% who prefer a higher degree of risk because the returns could be greater.

Based on MetLife’s latest study findings, very few companies currently offer annuities as either a defined contribution distribution option (16%) or as an IRA rollover option (13%).

The 8th Annual MetLife Study of Employee Benefits Trends was conducted during the fourth quarter of 2009 and consisted of two distinct studies fielded by GfK Custom Research North America. The employer survey comprised 1,503 interviews with benefits decisionmakers at companies with staff sizes of at least two employees. The employee sample comprised 1,305 interviews with full-time employees age 21 and over, at companies with a minimum of two employees.

More information is at www.metlife.com/trends2010.

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