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Buffett is the ideal advisor: Allianz Life survey

Among famous personages, Berkshire Hathaway CEO Warren Buffett is the one that baby boomers and their parents would most like their financial advisors to resemble, according to the 2012 American Legacies Pulse Study by Allianz Life.  

Ben Stein, the economist-lawyer-actor-author, ran a distant second (9% of boomers and 6% of elders) to Buffett, but Stein was well ahead of Katie Couric and Ellen DeGeneres, whom only about 2% of boomers and even fewer older people suggested as their ideal advisor.

Most people would rather inherit “family stories” than money, the Allianz Life study suggested. Eighty-six percent of boomers (ages 47 to 66) and 74% of those ages 72 and older say that “family stories” are the most important aspect of their legacy, ahead of personal possessions (64% for boomers, 58% for elders) and the expectation of inheritance (9% for boomers, 14% for elders). A similar Allianz Life study in 2005 found that 77% of both boomers and elders called “family values and life lessons” the most important legacy.

In both the 2005 and 2012 studies, only 4% of boomers and elders said they felt the previous generation “owed” them an inheritance. The share of elders who feel they owe their children an inheritance fell to 14% in 2012 from 22% in 2005—perhaps because they have less excess savings to bequeath in the wake of the financial crisis.

Boomers and their parents are not equally focused on legacy planning, however, The 2012 study showed that 75% of elders have obtained help from a lawyer, financial professional, accountant or estate planner in planning their inheritance and 79% have discussed legacy planning with their children.

In comparison, fewer than half of boomers have obtained professional legacy planning assistance and nearly 50% have not talked with their own children about inheritance issues. A fourth of boomers, but only a twentieth of elders, have not planned their inheritance.    

“Honest and trustworthy” are the characteristics that boomers and elders continue to seek in advisors (89% and 91% in 2012, up from 74% and 67% in 2005). Those surveyed also looked for advisors who “explain things in an easy to understand way” and are “good listeners.”

Concern over taxes has risen sharply over the past seven years. In 2005, 51% of boomers and 43% of elders cited the importance of their financial professional’s ability to “help minimize taxes.” In 2012, 75% of boomers and 70% of elders indicated the same skill. 

The 2012 American Legacies Pulse Study was commissioned by Allianz Life Insurance Company of North America and conducted online by SNG Research Corporation during the week of January 12-19, 2012. About 2000 boomers and elders were surveyed in both 2005 and 2012.   

Nationwide introduces fee disclosure ‘Solutions Kit’   

Nationwide Financial has developed a “408(b)(2) Solutions Kit” to help retirement plan sponsors and advisors comply with Department of Labor (DoL) regulations generally and with the fee disclosure regulations that take effect July 1 in particular.  

The Solutions Kit includes:

• A guide to Nationwide’s tools and services that help plan sponsors understand and comply with the new requirements.
• Summaries of the DoL requirements and of the plan fiduciary’s responsibilities for establishing that the fees paid to service providers are “reasonable.”
• A handbook that helps plan advisors explain their services to plan providers.

Nationwide said it will send updates to retirement plan advisors on its 408(b)(2) resources via emails and conference calls. Through Nationwide’s ERISA and Regulatory Online Resource, advisors can consult regulatory specialists. 

Saving habits determine retirement security: Putnam  

Americans who defer 10% or more of their income to employer-sponsored retirement plans will be best prepared for retirement, according to the most recent edition of the Putnam [Investments] Lifetime Income Score survey of about 4,000 Americans.

The survey showed that U.S. households are on track to replace 65% of their current income in retirement, on average. Households that were best prepared (with scores of 100% or more) have a total household retirement savings rate of 27.4%, while those least prepared (with scores of 0% to <45%) save only 5.1% of their income.

Spark Institute creates 403(b) participant disclosure information form

The SPARK Institute has created an “Investment Provider Information Form for Multivendor 403(b) Plan Participant Disclosure” that will help facilitate compliance with the Department of Labor’s participant disclosure regulations by investment providers and record keepers serving 403(b) plans with multiple vendors.

“As service providers prepare to comply with the 404a-5 participant disclosure regulations for multivendor 403(b) plans, it may be necessary for them to contact and coordinate disclosures with other investment providers,” said Larry H. Goldbrum, General Counsel of The SPARK Institute.

“In order to assist in this process, we have developed a short information form that will help record keepers and investment providers locate the appropriate contacts at other companies so their disclosures may be coordinated.”  The information form also includes some basic information about the investment provider’s compliance approach and timing, he said.

Goldbrum said The SPARK Institute has already collected contact information from many of the leading 403(b) plan vendors.  The completed information forms are available upon request and free of charge to 403(b) plan record keepers and investment providers, including non-SPARK Institute members.

Investment providers are asked to complete the form with respect to their disclosure efforts prior to receiving the other investment providers’ information.  A blank form, including instructions for submission, is available at www.sparkinstitute.org.  Record keepers and investment providers may request the completed information forms by sending an email to [email protected]. 

The SPARK Institute represents the interests of a broad-based cross-section of retirement plan service providers and investment managers, including banks, mutual fund companies, insurance companies, third party administrators, trade clearing firms and benefits consultants. Its members serve approximately 70 million participants in 401(k) and other defined contribution plans.

© 2012 RIJ Publishing LLC. All rights reserved.

The Secure Choice Pension (SCP), a program that would allow employees of private small businesses to participate in their state’s public pension plan—and perhaps create competition for 401(k) providers—is the subject of a new bill in the California legislature.

The SCP is a creation of the Washington, D.C.-based National Conference on Public Employee Retirement Systems (NCPERS), the largest trade group for public sector pension plans. Its executive director is attorney Hank Kim. California state senator Kevin de Leon (D-Los Angeles) has used NCPERS’ SCP proposal as the model for his Retirement Savings Act (SB1234). The Senate Committee on Public Employment and Retirement and the Senate Labor Committee recently approved it.

The bill proposes a “new retirement plan that would be immune to stock market fluctuations and sudden economic downturns and would provide their employees with a guaranteed monthly pension benefit for life after they stop working,” according to an NCPERS release.

NCPERS unveiled the SCP in late 2011 (see RIJ, Sept. 21, 2011) in response the general shortage of retirement plan availability in small businesses. Under the proposal, each state would establish its own professionally managed SCP as an adjunct to the state pension plan, allowing small business employees and employers to contribute. The state pensions’ economies of scale and professional management would, NCPERS has argued, produce higher overall returns at a lower cost than the typical small-business 401(k) plan could.

A survey of 505 owners of small (2 to 49 employees) businesses in California conducted in late April for NCPERS by Lake Research Partners showed support for the plan. According to the survey:

• 53% of California small business owners are interested in the SCP for their own employees, while 71% support the concept.
• SCP is supported by 70% of small business owners who already offer a retirement plan and 73% of those who do not offer retirement benefits.
• 78% of Democrats and 70% of Republicans favor the SCP idea. Among Republican small business owners who currently do not offer retirement benefits, 77% support it.  
• 76% of men under age 50 and 73% of men age 50 and over favor the concept, as do 71% of women under 50 and 59% of women age 50 and over.
• 73% of owners of minority-owned businesses favor the SCP, as do 64% of owners of women-owned businesses.
• In the San Francisco Bay area, 68% of small business owners favor the plan; in Northern California (excluding the Bay area), 81% support it. In Los Angeles County, 64% favor the plan, as do 75% in the rest of Southern California.
• While a majority of small business owners believe their employees need retirement benefits, 60% say that offering a currently available retirement plan is too expensive.

NCPERS’ full proposal for the Secure Choice Pension is available at www.retirementsecurityforall.org. Its California Small Business Survey findings are available at www.ncpers.org.

© 2012 RIJ Publishing LLC. All rights reserved.

Separately managed accounts received estimated net inflows of $34 billion in the first quarter of 2012, reversing outflows of $104.6 billion in the last two quarters of 2011, according to TrimTabs Investment Research and Informa Investment Solutions Plan Sponsor Network.

“Separate accounts investing in bonds and foreign equities attracted $59 billion and $16 billion, respectively, in the quarter. In contrast, $48.5 billion flowed out of U.S. equity separate accounts in the same period,” said Minyi Chen, vice president and head of TrimTabs research.

Separate accounts, which are managed by investment companies on behalf of pension funds, pooled funds, insurance companies, or wealthy individuals, allow investors substantially more control over their holdings compared to investments in mutual funds, hedge funds and exchange-traded funds.

In a research note, TrimTabs reported that first-quarter flows into separate accounts—favoring fixed-income securities and shunning U.S. stocks—match investor demand for other major investment vehicles including mutual funds, ETFs and hedge funds.

“These flow numbers suggest investors are unconvinced that the global economy will remain in recovery mode going forward,” said Charles Biderman, CEO and founder of TrimTabs. “Separate account managers see limited potential for capital appreciation in stocks and they are putting a premium on current income in a low-yield environment.”

Flows into separate accounts for the three quarters ending March 31 tell much the same story, according to TrimTabs. While U.S. equity accounts lost $158.1 billion, foreign equity accounts gained $28.9 billion and bond accounts gained $31.9 billion.

© 2012 RIJ Publishing LLC. All rights reserved.

Although average life expectancy at age of 65 in Great Britain is 17.6 years for men and 20.2 years for women, the healthy life expectancy is just 9.9 years for men and 11.5 years for women, according to research from British insurer Prudential plc (unrelated to U.S.-based Prudential Financial).

Despite facing a high risk of ill health during their late 70s and 80s, however, not many people are preparing for it. Prudential’s recent ‘Class of 2012’ study into the finances and expectations of those planning to retire this year shows that only 20% have set money aside for unexpected health care expenses. Among those age 65 and over, only 16% have.    

Prudential’s research also found that only 45% of this year’s retirees have planned for the fact that they may need more income in retirement as they get older.

“Although life expectancy is increasing, healthy life expectancy is flat-lining,” said Vince Smith-Hughes, a retirement expert at Prudential. “With the average person now working until they are aged 63.4, people are enjoying fewer healthy years in retirement. Spending the first few years of retirement trekking in the Andes and running around after grandchildren may be a reality for some, but it is important not to forget that health will worsen as pensioners get older.”

Across Great Britain, those planning to retire this year in Wales are the most likely to have prepared for the risk of ill-health in retirement (32%), while those in the East of England (7%) are the least prepared.

The British government is currently considering recommendations from the Dilnot Commission on the Funding of Care and Support which, in July 2011, proposed that an individual’s contribution to long-term care–“social care” in the U.K– should be capped at GBP35,000 ($54,700), with any additional costs paid by the government.

© 2012 RIJ Publishing LLC. All rights reserved.

Sun Life Financial has acquired naming rights to the Boston Celtics “Courtside Club” as part of a multi-year partnership beginning in the 2012-2013 season. Financial terms were not disclosed.

The Courtside Club, the Celtics’ primary hospitality venue in the TD Garden, is used to entertain team owners, courtside ticket holders, corporate partners and VIP guests during each Celtics home game. It will be designated as the Sun Life Courtside Club. Sun Life has been a sponsor of the Boston Celtics since the 2010-11 season.

Sun Life’s brand will be featured throughout the venue, including entry and directional signage pointing guests to the club and the club’s interior, as well as on staff uniforms and courtside tickets and passes required for club admission.

Sun Life will also receive seat-back signage on the first-row courtside sideline seats for all Celtics home games, the opportunity to host customer events in the Courtside Club, and courtside season tickets and club passes.

Sun Life will also receive additional promotional and marketing assets, including extensive presence in the arena through courtside signage, branded in-game promotions and features, 21 “Sun Life Honorary Ball Kid Experiences” and the rights to use Boston Celtics team marks and logos in external and internal marketing and advertising campaigns.

As a sponsor of Celtics.com, Sun Life will receive exposure on one of the most highly trafficked sites in professional sports, including presenting sponsorship of Celtics Minute, a daily video vignette. Celtics.com averages more than 8.5 million page views and 1.5 million unique visitors per month, for a total of 70 million page views each season.

The partnership also calls for Celtics executives, legends and personalities to participate in Sun Life programs, initiatives and meetings with the Celtics leprechaun mascot, Lucky, and to make appearances at local community organizations in conjunction with Sun Life’s philanthropic initiatives.  

© 2012 RIJ Publishing LLC. All rights reserved.

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Forty-four indexed annuity carriers participated in the 59^th edition of AnnuitySpecs.com’s Indexed Sales & Market Report, representing 99% of indexed annuity production. Total first quarter sales were $8.0 billion, down just under 3% from the previous quarter. As compared to the same period last year, sales were up more than 13%.

Allianz Life maintained its position as the #1 carrier in indexed annuities with a 17% market share. Aviva maintained its position as the second-ranked company in the market, while American Equity, Fidelity & Guaranty Life, and Great American (GAFRI) rounded-out the top five, respectively.

Allianz Life’s MasterDex X was the top-selling indexed annuity for the 12^th consecutive quarter. Driving sales of indexed annuities, Guaranteed Lifetime Withdrawal Benefit (GLWB) elections were elected on nearly 56% of total indexed annuity sales this quarter. The riders are increasingly being utilized to guarantee income; more than 10% of indexed annuity owners that had elected a GLWB rider are actively taking guaranteed lifetime income payments under the endorsement today.

For indexed life sales, 46 insurance carriers participated in the AnnuitySpecs.com’s Indexed Sales & Market Report, representing over 99% of production. First quarter sales were $255.9 million, a decline of over 20% as compared to the previous quarter. In contrast to the same period in 2011, sales were up nearly 34%.

Items of interest: Aviva recaptured its former number one position in indexed life, with a 13% market share. AXA Equitable was second, while AEGON Companies, Pacific Life Companies, and Allianz Life rounded-out the top five companies, respectively. AXA Equitable’s Athena Indexed UL was the top-selling indexed life insurance product for the fourth consecutive quarter. Average target premiums on indexed life increased to $7,702 for the quarter.

Analysts at Fitch Ratings in New York and London released a report last week summarizing the environment that faces the world’s 29 largest financial institutions as they prepare for the higher capital requirements of the so-called Basel III rules promulgated by the Bank of International Settlements.

The report, “Basel III: Return and Deleveraging Pressures,” reflects the urge by global banking authorities, in the wake of the global financial crisis, to reduce the risk profile of financial institutions that are so large that governments would have to support them—i.e., “bail them out”—if they were in risk of insolvency.

The Federal Reserve endorsed the Basel III rules last December and said that it would apply the rules to all U.S. financial institutions with more than $50 billion in assets. The new rules will be implemented between the end of 2012 and the end of 2018.

Timetable for meeting Basel III targets

The 29 global systemically important financial institutions (G-SIFI) might need to raise roughly $566 billion in common equity in order to satisfy new Basel III capital rules, according to a Fitch analysis based on year-end 2011 figures.

That represents a 23% increase relative to the aggregate common equity of $2.5 trillion of these institutions, which as a group represent $47 trillion in total assets. Basel III will not be fully implemented until six and a half years from now, but banks face both market and supervisory pressures to meet these targets earlier.

To address these shortfalls, banks will likely pursue a mix of strategies, including retention of future earnings, equity issuance, and reducing risk-weighted assets (RWA). Absent additional equity issuance, the median G-SIFI would be able to meet this shortfall with three years of retained earnings, which might constrain dividend payouts and share buybacks.

New capital requirements would hurt ROE

This potential capital increase could reduce these banks’ medium return on equity (ROE) by more than 20%, from about 11% (their experience over the past several years) to approximately 8% to 9% under the new rules.

Basel III thus creates a tradeoff for financial institutions between declining ROE, which might reduce their ability to attract capital, versus stronger capitalization and lower risk premiums, which benefits investors.

Banks that continue to pursue ROE targets in the mid-teens (e.g. 12%–15%) would have to reduce expenses and raise prices on borrowers and customers where feasible, Fitch said. Banks may also seek to increase ROE through riskier activities that maximize yield on a given unit of Basel III capital, including the use of new forms of regulatory arbitrage.

How G-SIFIs might respond

G-SIFIs face a trade-off, with higher capital requirements potentially offset by competitive advantages stemming from their official status as systemically important institutions. Some investors and counterparties might perceive these institutions as more likely to receive government support in a distress scenario. This perception, coupled with the G-SIFI’s higher capital standards, could in turn reduce funding costs and stimulate business flow from more risk-averse customers. Conversely, institutions that deem G-SIFI status as a regulatory burden might seek to reduce or limit their size and complexity in order to avoid this designation.

© 2012 RIJ Publishing LLC. All rights reserved.

Older investors generally fit into one of three categories, according to the latest study from Hearts & Wallets, the Hingham, Mass.-based consulting firm led by Laura Varas and Chris Brown.

The findings of the study, “Shining a Light on Pre- and Post-Retirees: What 3 Different Retirement Lifestyles Reveal about Language, Attitudes and Experiences with Advice and Retirement Income,” was based on responses from nationwide focus groups.

The full report is available from Hearts & Wallets. 

Here’s how Hearts & Wallets described the three demographic sub-segments:

• Full-Steam Aheads. They plan to work at least part-time in retirement “to avoid mental deterioration and keep their options open.”
• Balancers. – They view part-time work in retirement “as an insurance policy for the future and a way to earn spending money.”
• Leisure Pacers. They plan to stop working in retirement but are “more involved with their finances now than ever before.”

Overall, Hearts & Wallets found that simply promoting your capabilities as a retirement income specialist will not automatically bring older Americans running to consolidate their assets with you or your company. The older market is more nuanced than that.

“The term ‘retirement income’ means three wildly different things to different types of older investors,” said Varas. “Many firms think of ‘retirement income planning’ as a service that helps older Americans plan how to take income from their personal assets. But using one lifestyle segment as an example, Full Steam Aheads often think the term ‘retirement income’ refers to ‘entitlements,’ like pensions or Social Security.

“Since Full Steam Aheads tend to take responsibility for themselves and others, they don’t even think ‘retirement income’ applies to them! This misunderstanding is a tragedy because many of these offerings are specifically designed to help people like them.”

The myth of asset consolidation

Contrary to what many companies hope, older Americans general don’t plan to put all their eggs in one service provider just because that provider is adept at “retirement income.” Many older investors express a reluctance to consolidate assets with one firm. Only a minority of older investors will consolidate with a single provider.

“Retirement income services may help providers increase wallet share,” said Brown. “But they need to be careful about asking for everything. And they need to understand trust-drivers and -eroders.”

Some investors have had bad experiences with advisors who have put their own interests ahead of the client. Some still work with an advisor but put in extra hours checking up on advisor recommendations.

A note about trust and calculators

A few key trust drivers/eroders include:

• An advisor who takes time to get to know the client.
• An advisor who offers reasonable and clear fees.
• Staff or advisor turnover is a key trust eroder.

The study also details how investors connect with financial services providers and advisors. Many investors met their provider or advisor through a workplace retirement plan.

Receptivity to retirement calculators is mixed. Many older investors like using calculators to try on different decisions before having to make them. But others see calculators as rigged and as prompting the investor to put more money than necessary into mutual funds. The full study provides a review of investor opinions on the usefulness of retirement calculators, how they use them or would like to, and how advisors can use retirement calculators with clients.

Investor receptivity to three retirement income concepts

The study also examined techniques older Americans use to generate retirement income today, their likes and dislikes, and language that might support optimal income solutions.

The study explored how older Americans are currently executing three popular techniques:

• Establishing a guaranteed “Income Floor”
• Breaking up assets into “Time-based Buckets” that can be used in different periods of life
• “Sustained Withdrawal,” or seeking to take income from an overall diversified portfolio

In the full report, different types of older investors provide detailed responses to these concepts. Interestingly, there were some signs of thawing in attitudes to annuities, which can perform the important, attractive economic function of providing steady income and pooling longevity risk.

Unfortunately, consumer misfortune with poor business practices, such as over-engineering or excessive fees and sales commissions, means resistance runs deep. On the other hand, the term “income annuities” doesn’t hold the same negative connotations as “annuities.”

© 2012 RIJ Publishing LLC. All rights reserved.

Allianz Global Investors is bullish on Asia, according to a recent report in Investments & Pensions Asia. The firm expects Asian bond funds to become more available to Western investors, and expects Asian currencies to appreciate in the years ahead, despite some volatility.

Andreas Utermann, global chief investment officer at AGI, was quoted as saying that “investors remain completely risk averse [regarding Asia] but their risk assessment is based on experiences over the last 30 years – and this is wrong.”

“Asian asset classes will outperform Europe and the US between 2010 and 2020 but there will be times when they will not and these are the times when you want to go in,” said Stuart Winchester, Senior Portfolio Manager, Oriental Income, at AGI. “You have to be patient like a hawk waiting for a big fish.”

David Tan, the new head of investments at AGI Singapore and CIO of Pan-regional Asian Bond Mandates, said that the Asian financial crisis of the late 1990s was “a necessary adjustment for Asia to go through” toward better fundamentals.

 “Most of the Asian economies are export-driven and they have to switch to different ways of getting rich – and one of them is to let the currency appreciate,” said Utermann, adding that the Chinese government “won’t do anything that might spoil the once-in-a-lifetime opportunity of the RMB becoming a global currency.”

Helen Lam, Senior Portfolio Manager RMB and Fixed Income strategies at AGI, expects the RMB to become a fully convertible currency “maybe by 2020” but first China will “have to liberalize the interest markets,” among other things. Recently, the first RMB bonds were launched on the London Stock Exchange, and Lam thinks that New York, followed by Tokyo and maybe Sydney might be next.

© 2012 RIJ Publishing LLC. All rights reserved.

Whenever the topic of selling income annuity arises (and it arises more frequently these days than ever) David Babbel’s white paper on income annuities, “Investing Your Lump Sum at Retirement,” inevitably comes to mind.

The paper, written by the Wharton School professor in 2007 under the sponsorship of New York Life, makes the case for buying an income annuity better than any glossy marketing brochure you are ever likely to find.

No photos of sailboats or white-haired captains in this document. No his-and-hers Adirondack chairs at the end of the dock.  

Anyone who markets or sells income annuities for a living should not only read this document but carry a creased, dog-eared and heavily-underlined copy of it in his or her coat pocket at all times.

Babbel supplies the background that someone new to annuities might need, then tackles what he calls the seven—a magic number in gambling and in advice manuals; just ask Stephen Covey—myths about annuities and provides a bullet-proof response to each one.

If you have time, I urge you to read the entire paper. For those who don’t have time, I’ll summarize his call-and-response below. First the annuity myth, then a summary of Babbel’s rebuttal.

1. They cost too much. When you calculate the expense ratio that you pay year after year on an actively managed mutual fund, the one-time commission that you pay when buying the typical income annuity will seem quite small.   

2. What if I get sick? An income annuity, especially one that offers accelerated payments in case of serious illness, can be a versatile and thrifty alternative or supplement to long-term care insurance.

3. What if inflation returns? Won’t my fixed payments become worth less? Many of today’s income annuities offer inflation-protection, either in the form of an annual increase or a peg to one of the versions of the Consumer Price Index.

4. Isn’t it cheaper to use some sort of homemade strategy that mimics the behavior of life annuities? That way I can cut out the insurer! Babbel articulates the insurance principle and compares not having an annuity to playing Russian roulette with your financial security.

5. If I put all of my money in a life annuity, will there be anything left for my kids? If you buy an annuity that covers your basic needs, you may be able to give part of the remainder of your wealth to your children today, rather than making your death the prerequisite of an inheritance.    

6. If I purchase an irrevocable life annuity at retirement, don’t I lose control over those funds? Yes, says Babbel, and that’s a good thing! An income annuity can remove the burden, the anxiety and the risk of handling stocks and bonds at an advanced age.  

7. Shouldn’t I wait to buy in case interest rates go up? You can—but life expectancies may also go up, making annuities more expensive in the future. And while you’re waiting, your investments could lose value. Indeed, what if rates go up and trigger a stock market crash? You might have less money to invest in an annuity.

And here’s Prof. Babbel’s stirring conclusion:

When individuals consider the list of positive attributes associated with life annuities, i.e., guaranteed payments you cannot outlive, low cost, access to invested capital, and reasonably priced features such as inflation adjustment and legacy benefits, the argument for this income solution in retirement is compelling.

By covering at least basic expenses with lifetime income annuities, retirees are able to focus on discretionary funds as a source for enjoyment. Locking in basic expenses also means that the retiree’s discretionary funds can remain invested in equities for a longer period of time, bringing the benefits of historically higher returns that can stretch the useful life of those funds even further.

Income annuities may also be a vehicle that enables retirees to delay taking Social Security benefits until they are fully vested, bringing substantially higher payments at that point.

The key in all of this is to begin by covering all of the basic living expenses with lifetime income annuities. Then, to provide for additional desirable consumption levels, you will want to annuitize a goodly portion of the remainder of your assets, while making provisions for extra emergency expenses and, if desired, a bequest.

These last two items can be accomplished through combinations of insurance and savings. When this is undertaken, you can enjoy your retirement without the burden of financial worries and focus on more productive uses of your time and attention!

Mercer launches “My Retirement Workshop” for plan participants

Mercer, the provider of defined contribution plan services to 1.3 million participants, benefits has launched “My Retirement Workshop,” (www.myretirementworkshop.com) an online retirement planning and education campaign for employees whose 401(k) plans it administers.

Styled after popular home improvement TV shows, the website provides interactive tools and instruction to help investors “fix up” their retirement plans.

My Retirement Workshop consists of four main features:

• A brief self-assessment tool that provides personalized feedback and recommended actions.
• A selection of projects that address common retirement planning challenges.
• A toolbox of calculators, worksheets and widgets.
• An opportunity to “learn from the pros” by watching videos, listening to podcasts or reading articles.

Visitors to the site can interact with peers through discussion boards, take quick polls and share the site through social media. The My Retirement Workshop online education campaign was launched in early May and will be a year-long campaign, with new content and features to be added in the fall.

Participants can access My Retirement Workshop through their plan’s website. A public version of the site is also available at myretirementworkshop.com, where mobile device users also can access a mobile-optimized variation of the site for easy viewing.

Plan participants would welcome an income solution: The Hartford

Three out of five Americans (64%) say their employer’s 401(k) or other retirement plan does not allow them to turn their savings into guaranteed income in retirement or they are unsure if it does, according to The Hartford’s Guaranteed Retirement Income study.

The concept of guaranteed retirement income appeals most to those with a combined annual household income of $50,000-$74,000. A total of 92% in that demographic would like their employer to offer a guaranteed income option compared to 87% percent of those earning $30,000-$49,000, 86% earning less than $30,000, and 84 % earning $75,000 or more.

Women (89%) had a slightly greater preference for guaranteed retirement income than men (84%).

Perhaps because younger workers are less likely to have defined benefit pensions at work, the study also showed that the younger the employees, the more interested in a income solution they were:

• Overall, 87% of respondents of all ages say they find it “very” or “somewhat” appealing to be able to turn at least a portion of their retirement savings into a guaranteed income.
• 95% of workers younger than 30 say the same, the highest of any age group.
• The same sentiment was expressed by 90% of those ages 30-39, 89% of ages 40-49, 88% of ages 50-59, and 77% of those age 60 and older.

The Hartford’s study, which surveyed 2,500 Americans ages 18 and older earlier this spring, was conducted following the introduction of The Hartford Lifetime Income (HLI), an investment option that allows 401(k) participants to use their savings to create a pension-like income in retirement.

Michael Smith named Chief Risk Officer of ING U.S.

Michael Smith has been named chief risk officer with responsibility for overseeing the enterprise-wide and business-level risk monitoring and management program for ING U.S., the company reported.

Smith joined ING in 2009 as chief financial officer and chief risk officer for the ING U.S. Annuity business. In 2011, he became chief executive officer of the ING U.S. Annuity business, and led the effort to manage the variable annuity book of business into a run-off closed block. 

Smith’s responsibilities include managing the framework for measuring, controlling, hedging and pricing risk. In addition to his risk management role, he will continue to oversee the Closed-Block Variable Annuity run-off business.

Before joining ING, he was the head of Profitability and Risk Management for Retirement Solutions at Lincoln Financial Group (LFG), where he held several leadership positions, including chief actuarial officer for Lincoln National Life, chief administrative officer and CFO for Lincoln Financial Distributors Inc. (LFD), CFO and chief risk officer for LFG’s Life and Annuity division and head of customer support for LFG’s Employer Markets division.

An actuary and CFA, Smith holds bachelor’s degrees in economics and Russian studies from the University of Michigan.  

Edward Jones first in “investor satisfaction: J.D. Power & Assoc.

For the sixth year out of the past eight, Edward Jones has ranked highest in investor satisfaction among full service brokerage firms, according to the J.D. Power and Associates 2012 Full Service Investor Satisfaction Study. 

The study measures overall investor satisfaction with full service investment firms on the basis of seven factors: investment advisor, investment performance, account information, account offerings, commissions and fees, website and problem resolution.  

Edward Jones ranked highest in investor satisfaction by J.D. Power and Associates in 2010 and 2009, from 2005 through 2007, and in a tie in 2002, when the study began. Edward Jones in Canada ranked highest in the J.D. Power and Associates Canadian Full Service Investor Satisfaction Study in 2006 through 2008.

The 2012 Full Service Investor Satisfaction Study is based on responses from 4,378 investors who primarily invest with one of the 14 firms included in the study.  The study was fielded in February 2012. Edward Jones’ 12,000-plus financial advisors serve almost 7 million clients individual investors in the United States and Canada.  

Americans respect/disrespect Wall Street   

Each year The Harris Poll asks the Americans what they think about “the nation’s largest banks, investment banks, stockbrokers, and other financial institutions”—the businesses known metonymically as Wall Street.  

Again, this year, the American public said that the Street has problems. Eight percent of those polled agreed with the statement that Wall Street “benefits the country a lot.” (As recently as 2004, that number was 24%.) Twice as many—16%—said Wall Street “harms the country a lot.”

By a margin of 82% to 15%, American adults believe that “Wall Street should be subject to tougher regulation.” But, by 62% to 34%, Americans also believe that “Wall Street is absolutely essential,” the poll showed. Over half of U.S. adults, or 55% (down from 80% in 1997) believe that Wall Street benefits the country while 42% (versus 13% in 1997) believe it harms the country.

Some of the other main findings of this year’s poll, which was conducted among 1,016 adults in mid-April, were:

• Almost four in five Americans (78%) believe that Wall Street firms should only pay bonuses when they are doing well and making good profits;
• Seven in ten U.S. adults (70%) believe most people on Wall Street would be willing to break the law if they believed they could make a lot of money and get away with it;
• Just over two-thirds of adults (68%) do not believe that people on Wall Street are as honest and moral as other people;
• Two-thirds (67%) of U.S. adults do not believe that what is good for Wall Street is good for the country; and,
• Almost two-thirds (64%) do not believe most successful people on Wall Street deserve to make the kind of money they earn.

New advisor tool from Nationwide to help with health care cost planning

Nationwide Financial has launched a new online tool, called the Personal Health Care Assessment program, to help advisors estimate their clients’ health care expenses in retirement.

The program uses proprietary health risk analysis and up-to-date actuarial cost data such as personal health and lifestyle information, health care costs, actuarial data and medical coverage to provide a meaningful, personalized cost estimate that will help clients plan for medical expenses.

To illustrate the opportunity that advisors have for using the medical issue as a way to enhance or initiate client relationships, Nationwide also sponsored a Harris Poll showing that nearly half of soon-to-be retired high net worth Americans say they are “terrified of what health care costs may do to their retirement plans,” and nearly three in four say soaring health care costs is among their top retirement fears.   

The Poll of 1,250 Americans (half of whom plan to retire by 2020) with $250,000 or more in household assets showed that 38% of those nearing retirement haven’t discussed their retirement with an advisor. Of those who have, only one in five discussed health care costs in retirement not covered by Medicare.

The survey also revealed that 43% of soon to be retired Americans say they plan to discuss health care costs with a financial advisor. Of the 12% of near-retired Americans who said they plan to switch financial advisors, 54% said they would be likelier to stay with their current advisor if they could get help planning for health care expenses in retirement.

Although three in five (59%) near-retirees say that most financial advisors are not equipped to discuss retirement health care costs with their clients, many of those who have indicated that it was worthwhile. Only one in five surveyed say they are confident in their knowledge of Medicare coverage, and more than half say it is “very to extremely important” they educate themselves on Medicare coverage when planning for retirement.

Near-retirees who plan to enroll in Medicare estimated that Medicare would pay for 68% of their health care costs in retirement. But when asked how they arrived at that percentage, nearly three in four said they guessed or didn’t know, 15% based on their own research, 7% spoke with friends who have already retired and 4% said their financial advisor told them. According to the Employee Benefit Research Institute, Medicare currently covers only about 51% of the expenses associated with health care services.

While 45% expect health care to be their biggest expense throughout retirement, on average they expect to spend only $5,621 a year on health care. But a 2010 study estimated out-of-pocket health care expenses for a 65-year-old couple retiring today and living for 20 years to range from $250,000 to $430,000, or as much as $10,750 a year per person.

Harris Interactive collected data for the survey from January 3-19, 2012. Sampling included 625 adults ages 55+ having $250,000 or more in household assets who plan to retire by 2012 and 625 retired adults ages 65+ having $250,000 or more in household assets.  

Waste from “suboptimal” trade execution cited

As much as $5 billion is wasted each year in sub-optimal broker routing decisions, according to an examination of the execution quality of marketable limit orders and at-the-quote limit orders on U.S. equity exchanges by Woodbine Associates, Inc.

The report, “U.S. Equity Exchange Performance,” focuses on how exchanges compare in execution quality and information asymmetry associated with basic order types central to price discovery.

“There are differences among exchanges,” said Matt Samelson, principal and author of the report. “The buy-side must look out for themselves, intensively review sell-side order handling, and insist on accountability for sub-optimal routing. At the same time, the buy-side should be willing to pay higher commissions to brokers that truly provide superior order routing and premium service.”

The third annually-produced report examines exchange performance in marketable limit orders and at-the-quote limit orders less than 2,000 shares, without special order handling instructions, traded during normal trading sessions, excluding the opening and closing trades. 

Marketable limit orders are examined on the basis of execution prices and the degree of post-execution price reversion. At-the-quote limit orders are examined only on the basis of price reversion. Orders are examined in the context of capitalization and listing exchange.

“Many orders are not routed to the right venues at the right time for the right reasons,” added Samelson. “When a broker’s fiduciary responsibility to a client’s execution ends, economics turn toward the broker and away from the client. Pennies earned by brokers may cost principals dollars in execution quality. It is important that each client knows where their broker’s fiduciary responsibility ends.”

To learn more, e-mail Ryan Surprenant ([email protected]) or call 203-274-8970, ext. 203.

J.P. Morgan offers Financial Engines^’ Income+ service to 401(k) plans

Financial Engines and J.P. Morgan Retirement Plan Services have announced that Financial Engines^® Income+ has been integrated into J.P. Morgan Retirement Plan Services’ 401(k) offering.

Income+ is available as part of J.P. Morgan’s in-plan professionally managed account program, J.P. Morgan Personal Asset Manager, which works within a 401(k)’s existing investment line-up to enable more personalized portfolios designed to provide steady retirement income.

Income+ is designed to balance safety and growth in the years leading up to retirement. It provides steady monthly payouts from a 401(k) account, which can last for life with the optional purchase of an out-of-plan annuity.

Fidelity enhances its smartphone app

Fidelity Investments said its free mobile phone “app” has been updated to enable stock plan participants to access and track their portfolios and conduct transactions from their iPhone, iPod touch or Android.

The app enables participants with stock option plans to exercise and sell their options by following simple prompts. Investors can determine the total value of all of their options, the price of their exercisable options, the estimated value of their options and the aggregated tax rate that will apply if the options are sold.

Previously, participants could view their stock plan account balances from their iPhone, iPod touch or Android smart phone but could not conduct transactions. Other recent mobile enhancements include improved trading and research capabilities, comprehensive international market analysis and mobile check deposit for IRA and brokerage customers.

Participants now using FutureAdvisor, a free planning tool, to track $1 billion   

Less than 60 days since its initial launch, FutureAdvisor, a company started by West Coast techies that provides free web-based retirement income planning tools, says that it is of over $1 billion in assets and has identified more than $37 million in fee-saving opportunities for users.

FutureAdvisor’s co-founder, Bo Lu, also said the company has released a private beta version of a new product called “FutureAdvisor Premium” that provides automatic rebalancing and portfolio cleanup.

Since its launch last March 20, FutureAdvisor has experienced an increase of 25% growth week over week in people adopting the service, with many new users coming from Microsoft, Google, Intuit, and Oracle. FutureAdvisor supports more than 100 of the largest 401(k) plans in the country.   

According to a release, the company’s “new [rebalancing] service eliminates an often complex and frustrating process and moves the industry one step closer to providing users the convenience of a portfolio that manages itself.”