The Advisor Effect: More Save For Retirement

By Linda Koco
AnnuityNews

Nearly 100 percent of baby boomers who work with an advisor do have savings for retirement, according to new research from the Insured Retirement Institute (IRI).

But among boomers who do not work with an advisor, only 64 percent have some money saved for retirement.

These findings were a key point raised during a morning conference call held by a Washington trade group to kick off the start of this year’s National Retirement Planning Week.

The report does not say that advisors “cause” more people to save for retirement or to have stellar retirement savings outcomes, but it does highlight a correlation between those who save for retirement and their involvement with an advisor. (The type of advisor is not specified.)

That should be good news for advisors who “know in their bones” that their efforts are impacting the retirement savings of clients but who don’t always have industry recognition of that role.

Sobering data

The research does include a number of sobering statistics about retirement prospects for many boomers, much of which resonates with other industry research in the same area.

For instance, 24 percent of the 50- to 66-year-old Americans surveyed told the researchers that they have trouble paying their mortgage or rent, and 21 percent said they have postponed their plans to retire. In fact, 79 percent of working boomers said that employment in retirement will be a source of income, up 12 percentage points from 2011.

Of the boomers who do not know at what age they will retire, 25 percent cited insufficient savings—the most common reason given, the researchers said.

Those bleak numbers might suggest bleak prospects for advisors, too—in the sense that, when money is tight, advisors find limited or no opportunity to be of service to a client. Many advisors have said as much in the past decade, especially in the wake of the two big recessions of the 2000s.

The advisor effect

However, the IRI findings point in the opposite direction —to something that may be termed the “advisor effect.” That is, the data illuminate that a relationship exists between a baby boomer’s retirement engagement and the presence of a financial advisor in the client’s life.

For example, 48 percent of boomers who work with an advisor told researchers that they feel extremely or very confident with their financial preparations for retirement. By comparison, only 28 percent of boomers who do not work with an advisor felt the same way.

In addition, 71 of those who work with an advisor said they have calculated a retirement savings goal compared with 34 percent who do not work with an advisor.

In the retirement plan arena, the advisor effect shows up in the survey’s rebalancing data. According to the report, 45 percent of boomers who work with an advisor say they rebalance their retirement plan portfo­lio once a year, and 20 percent say they rebalance once every few years.

That compares to a much smaller percentage—24 percent and 20 percent, respectively—of boomers who do not work with an advisor who said the same.

The rebalancing data is significant, because financial experts generally view periodic rebalancing as a positive sign for the investor. Without rebalancing, market performance can change a retirement account’s asset allocation over time, to the point that, as the IRI researchers put it, an investor can become exposed to more risk than intended.

Cathy Weatherford, IRI president and chief executive officer, described the findings involving advisors as a “silver lining” in the retirement report.

Although many boomers do lack confidence in their financial futures as they approach the retirement years, boomers who work with a financial professional are much more confident in their retirement plans, she explained in a statement accompanying the new report. “They also are more likely to have determined a retirement savings goal, more likely to have retirement savings, and more engaged with their retirement plans.”

Boomers are still facing financial challenges and trying to balance competing needs for their financial resources, observed the researchers in the report. Even so, it is possible for boomers to achieve their retirement goals, they wrote.  

“Working with an advisor is a major factor in achieving those goals,” the researchers concluded. “As this report has shown, working with an advisor increases levels of confidence and helps boomers [stay] focused and engaged with their retirement plans.”

More education and action steps

During the conference call in which IRI introduced its report, executives of seven financial organizations and firms, including the Financial Industry Regulatory Authority (FINRA) and the Employee Benefit Research Institute (EBRI), made brief presentations about the status of retirement in the United States today.

The overwhelming message: Consumers need more education on saving for retirement, including how-to action steps and supportive tools and resources. Comments included the following:

- Rob Kron, head of investment and retirement education at BlackRock, voiced strong support for more education of investors. That includes providing people with “just one thing” they can do to put them on the road to a better retirement. That helps them start to take action.

- Greg Cicotte, president of Jackson National Life Distributors, stressed that Americans need education so they can learn how to save more for retirement. “Retirement planning is not over at age 65,” he noted, explaining that people will continue to experience changes that require financial attention in their 70s, 80s and even 90s.

- Charlotte L. Mooney, head of individual markets marketing at ING U.S. Retirement, said that, in working with employer clients, her firm has found that employers believe employees need a “complete” solution. That is, they need a solution that is holistic and addresses all the financial priorities the employees face. That includes financial literacy programs, actionable steps and more personalized data.

- John L. Carter, leader of Nationwide’s Retirement Plans, also advocated for taking a holistic approach to retirement planning. Advisors should provide guidance not just on income planning but also on areas such as health care, Social Security and long term care.

- Geraldine “Gerri” M. Walsh, senior vice president of investor education at FINRA, pointed out that auto enrollment and auto escalation features in defined contribution plans “really do help,” and that “thoughtful plan design is important.”

- Nevin Adams, director of education and external relations at EBRI and co-director of the EBRI Center for Research on Retirement Income, said consumers who use retirement plan calculators and who set high retirement savings targets are generally better off than those who do not. There is a long list of tools at the American Savings Education Council website, he added.

- Bruce Ferris, senior vice president-sales and distribution at Prudential Annuities, said there are three reasons that confidence about retirement has been eroding—“fear, fear, fear.” That is, fear of risk, fear of volatility in interest rates as well as markets, and fear of loss. However, “’buy, hold and hope’ is a not a retirement plan,” he continued. People do need help with understanding, he said, and work needs to be done on changing the old paradigms about retirement.

 “Retirement is not an age, but an ongoing stage of life,” the IRI researchers pointed out. “As such, retirement preparation is essential for every American, most urgently for the baby boomer generation as they are on the threshold of retirement.”

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].