Data & Research September 12, 2018

Untreated Financial Stress Robs Work Force Productivity

Besides evaluating participant financial stress levels, a new OneAmerica survey also looks at the specific factors causing participants to experience financial stress.

Reported by

In addition to evaluating participant financial stress levels, a new OneAmerica survey also looks at the specific factors causing participants to experience financial stress.

Two in three retirement plan participants indicate they have moderate to very high levels of financial stress, according to recent client polling conducted by OneAmerica.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The firm finds one in five Americans report feeling “high” to “very high” financial stress levels.

“Not having enough for retirement was the top financial concern, cited by 34% of participants; not having enough to pay monthly bills was cited by 23% of participants, and not being able to pay housing costs was cited by 15% of participants,” the survey report says. “The study found that age impacts participant top financial concerns, with younger individuals showing more concern about meeting day-to-day expenses, and older individuals indicating they are more concerned about not having enough for retirement.”

Marsha Whitehead, OneAmerica vice president of enterprise marketing, notes that evaluating top financial concerns provides great insight into the root cause of financial stress.

“It is critically important for plan sponsors to understand and address participants’ concerns around retirement preparation and day-to-day financial needs,” Whitehead suggests. “Failing to do so might not only lead to a financially stressed work force, but one that may experience increased absenteeism, tardiness, decreased productivity and safety issues.”

OneAmerica’s survey shows one in three participants report that being able to meet day-to-day and monthly expenses most closely aligns with their definition of being financially well. One in four define financial wellness as having enough money to retire, followed by being prepared for a financial emergency or life event (15%), having a controlled level of debt (14%) and achieving a desirable level of income (12%), says the firm.

According to the polling, nearly one in four participants indicate that gaining control of their debt is most important when it comes to feeling financially well, followed by 22% indicating that contributing more to their retirement plan will help them in achieving financial wellness. Creating a formal budget or spending plan was cited by 19% of retirement plan participants.

“As the industry looks to place a value on a participant’s or a plan’s financial wellness, it is important to look at these results and understand that achieving financial wellness varies from participant to participant and can shift as an individual ages,” observes Melissa Musial, OneAmerica marketing research and data manager. “Although we see retirement preparation as a top financial concern and near the top of how participants define and achieve wellness, basic financial concerns such as meeting day-to-day expenses often take priority. If a plan sponsor has not yet implemented a financial wellness program, now is the time.”

A white paper with additional survey results is available for download here.

 

In Practice September 11, 2018

Registered Advisers Often Confused by Custody Reporting

Form ADV includes a number of questions about the custody of client assets; these questions continue to be a source of widespread confusion and inconsistent interpretations in the asset management industry.

Reported by

The Investment Adviser Association (IAA) and National Regulatory Services (NRS) released their 18th annual “Evolution Revolution” report, highlighting robust growth in the investment advisory industry.

According to the report, the universe of Securities and Exchange Commission (SEC) registered investment advisers continues to grow at a steady pace, creating a record number of investment advisory positions.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

The analysis also includes a snapshot of the “typical” registered adviser, generated by taking a median average of various key practice metrics. Generally speaking, most of the typical adviser’s clients are individuals, but he is also highly likely to have at least one pension or profit sharing retirement plan as a client. At the median, the report shows, SEC-registered advisers consult on nearly $360 million in assets while relying on an average of nine staff employees.

According to IAA and NRS, advisers broadly exercise discretionary authority over most assets and accounts served—but only rarely do registered advisers have actual physical custody of client assets or securities.  

The research suggests the industry’s recent focus on the Department of Labor’s (DOL) fiduciary rule is ostensibly reflected in the decrease in the number of firms charging commissions, which dropped to 3.6% of all SEC-registered advisers in 2018, down from 4.1% and 4.5% in 2017 and 2016, respectively. While the DOL fiduciary rule has been vacated by a federal appeals court, the reporting suggests commissions are still likely to remain unpopular.

“Another, perhaps related, trend is the increase in the number of advisers reporting charging fixed fees,” the analysis states. “Many factors are potentially contributing to this increase in fixed fees, including generational turnover as younger investors may prefer a subscription-like model when paying for financial advice.”

The report goes on to warn that advisers broadly seem to have some misconceptions about how to define asset custody.

“Form ADV includes a number of questions about the custody of client assets,” the report points out. “These questions—and the investment adviser custody rules—appear to continue to be a source of widespread confusion and inconsistent interpretations in the asset management industry.”

As the report explains, back in 2013, a Risk Alert published by the SEC’s Office of Compliance Inspections and Examinations (OCIE) emphasized that non-compliance with the custody rule, as amended in 2009, “was one of the most common issues found in routine investment adviser examinations and that, in fact, many advisers failed to realize they even had custody as defined in the rule.”

“These issues persist today,” the report warns. “The confusion stems from the fact that while advisers, in general, are prohibited from having physical custody of client assets, advisers are also deemed to have custody under certain other circumstances. Many of the questions in Form ADV relate to advisers that are deemed to have custody, although to complicate matters further, advisers that are deemed to have custody for certain types of reasons (such as the ability to deduct fees) are not required to answer certain custody questions on Form ADV.”

The report concludes the regulatory framework under the Advisers Act custody rule is “overly complex, unduly burdensome, and has caused unnecessary confusion for advisers.”

“We are encouraged that amendments to the custody rules for investment companies and investment advisers were added to the SEC’s Regulatory Flexibility Agenda in the spring of 2018 as a long-term action,” the report states. “Generally, long-term actions are items for which agencies expect to take regulatory action more than 12 months after publication of the agenda.”

The full 2018 Evolution Revolution report is available on the IAA website  and on the NRS website.

«