In Practice March 28, 2013

What Lies Ahead for Advisers and Clients

The future for advisers includes more fiduciary responsibility and a focus on participant outcomes, said panelists at PLANADVISER’s 2013 Top 100 Retirement Plan Advisers seminar on Wednesday.
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“I think the next big thing is going to focus on participant outcomes and how we improve those,” said Bradley Arends, CEO of Alliance Benefit Group Financial Services Corp.

Hugh O’Toole, senior vice president of sales and client management at MassMutual, echoed that sentiment. In three to five years, he anticipates the industry will focus even more on improving participant outcomes and helping employees prioritize retirement. “I think it’s a very, very exciting time to add value to business owners,” he said.

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Advisers and sponsors must move from efficiency to effectiveness and take responsibility for the outcome of the plan, he added. Behavioral finance is one tool advisers can use to improve outcomes by getting participants to “do things they didn’t realize were smart” — for instance, plan sponsors can stretch their match to potentially save the company money while helping participants save more for retirement.

A successful adviser is one who is able to demonstrate that he helped work with the plan sponsor to improve outcomes for a demographic that was previously unprepared for retirement, said Dominick Quartuccio, vice president of national sales and key account execution for Prudential. This also helps the plan sponsor see value in the adviser’s fees, O’Toole added.

Looking ahead, advisers may have more fiduciary responsibility, whether as 3(21) or 3(38) fiduciaries. There will not be a huge leap in advisers with these statuses in the next one or two years, but in the long run it is likely because clients are increasingly asking advisers to take on more fiduciary responsibility, Quartuccio said.

More sponsors are starting to understand the difference between 3(21) and 3(38) status, but it’s a work in progress, Quartuccio said. “I do think we are a few years away from total understanding of this,” he added.

 

Data & Research March 28, 2013

Older Employees Delaying Retirement

Older employees are delaying their retirement, says a survey from human resources and financial services firm Mercer.
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“Mercer Workplace Survey 12” tracked employee attitudes toward, and experiences with, employer-sponsored retirement, health and benefits programs. While younger employees were cautiously optimistic about the recovery of the economy, nearly six in ten (59%) older employees expected to delay their retirement date, up four points from the previous year.

Related to this were findings on perceived job security. While the number of employees concerned about losing their job dropped to 36%, this shift masks an age differential, according the survey, with the decline concentrated entirely among workers under the age of 50. For those age 50 and over, concern about job security rose two points from the previous year to 36%.

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With regards to saving for retirement, the survey found a resurgence of such efforts. Employees expect to increase their 401(k) contributions this year. Overall, employees expect to increase their contributions by 7% to just under $8,000. Again, though, employer 50 and older are concerned about retirement and finances. They expect to increase their contributions by 19% to just over $8,200. For this group, the number of employees who plan to max out their 401(k) contribution in the year ahead nearly doubled (to 13%).

In terms of confidence about investment decisions, the survey found that compared to the previous year, employees overall were less confident about their asset allocation (78%, down seven points), fund selection (78%, down five points) and contribution levels (73%, down three points).

Ironically, this dip in confidence comes in the face of employees having greater access to investment advice within their plans, according to the survey. Access to live in-person or telephone advice actually increased eight points from the previous year. Yet the proportion of all employees (both those with and without current access to in-plan advice) who would be willing to pay a fee for advice offered through their plan is down seven points to 30%.

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All of this leaves employees a little less sure of themselves this year than last when it comes to key measures of retirement planning confidence—down marginally on five of six trended metrics, including knowing how to calculate how much money they will need in retirement and being financially ready for retirement.

It also leaves them in a somber mood with respect to the proportion of their current income they are targeting to replace in retirement, says the survey. At 78%, this level is six points lower than the previous year and is only the second time since 2006 that employees’ targeted replacement ratio has dipped below 80%.

Overall, according to the survey, employees have a mixed outlook for the quality of their retirement.

The survey was conducted online during June 2012. It was based on a national cross-section of participants contributing to a 401(k) plan, irrespective of balance, or having a 401(k) balance of $1,000 or more, whether or not they are currently contributing. The survey results can be found here.

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