Making retirement security a reality What can financial institutions and advisors do?

16 June 2015

The retirement advisory industry is positioned to make a significant dent in alleviating the looming retirement crisis. Host Tanya Ott talks to Deloitte University Press authors Sean Cunniff, Sam Friedman, and Val Srinivas about how financial services firms may need to devise new ways of delivering appropriate, affordable retirement advice to a wider range of clients.


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TANYA OTT: This is The Press Room, Deloitte University Press’s podcast on the issues and ideas that matter to your business today. I’m Tanya Ott. When you think about retirement, what comes to mind? Days spent volunteering in your community? The ability to travel and explore the world? Time spent with grandkids?

Or maybe you plan to work until you die – either because you’re passionate about what you do OR you see no other option.

SAM FRIEDMAN: There’s been so much talk about how social security can’t be your sole source of income in retirement or shouldn’t be anyway if you want to live comfortably. There’s so much information out there in terms of people saying ‘you need to save, you need to save’.

TANYA OTT: Right now – the economy looks pretty good. Unemployment is down. The stock market is plugging along. But there are some troubling headlines buried in the news. March 2015: A report from the National Institute on Retirement Security warns that 86% of Americans believe the nation faces a retirement crisis. May 2015: Analysis by the U.S. Government Accounting Office finds that among households with members aged 55 or older, nearly a third have neither retirement savings nor a traditional pension plan. (Source:

SAM FRIEDMAN: Despite an improving economy and a booming stock market, 55% of those that we surveyed are still insecure about their retirement finances.

TANYA OTT: Sam Friedman is the Insurance Research Leader at the Deloitte Center for Financial Services. Last fall, the Center conducted an online survey of more than 2,000 Americans to find out how they felt about retirement. And you can dice that number Sam floated just a minute ago a couple of different ways. 55% of those surveyed said they’re “insecure” about their retirement plan. That’s an improvement based on what they found a few years ago when they did a similar survey. In 2012, approximately 75% of respondents said they weren’t confident about their retirement savings.

SAM FRIEDMAN: That’s almost 3 out of 4 people. But even in a good economic circumstances that we’re in today to see that more than half of the population still feels insecure is very troubling.

TANYA OTT: Friedman says what is clear in both surveys is that people who had a formal plan – ideally a written one – were more likely to feel good about their future. And that got Friedman and his colleagues wondering if people know they should be putting away more of a nest egg, why aren’t people saving more for retirement?

SAM FRIEDMAN: We found that 43% of those that are insecure about their retirement simply say they’re not able to put enough money to put aside for various reasons and about a 1/3 felt that they didn’t have enough disposable income to put aside money in a piggy bank for that rainy day when they actually have to stop working and depend on their savings and investments for retirement. We had asked, well, what’s keeping the industry from connecting with more individuals. It seems like an obvious fit because the industry has the expertise as well as the products and services that can help people prepare for retirement. So we identified five major barriers, we’re calling them, that’s keeping people from preparing adequately or at least discouraging them from trying.

TANYA OTT: Let’s bring in Sam’s colleagues… the “Barrier Guy.”

VAL SRINIVAS: My name is Val Srinivas. I’m the research leader for banking and securities at Deloitte Center for Financial Services.

TANYA OTT: And the “Solutions Guy.”

SEAN CUNNIFF So, I’m Sean Cunniff and I am research leader for investment management practice at Deloitte Center for Financial Services.

TANYA OTT: The researchers at the Center identified five barriers that keep folks like you and me from saving. The First: Conflicting Priorities.

VAL SRINIVAS: Whether someone should be saving for retirement…

SAM FRIEDMAN: Saving money for their kids’ college education…

SEAN CUNNIFF We have people coming out of college who have huge amounts of student loans…

VAL SRINIVAS: Pay off their debt…

SAM FRIEDMAN: Or even day to day expenses in these times when a lot of families have experienced a layoff and such….

TANYA OTT: We each have our own list. I have one kid in college right now, another that starts in two years, and another that starts two years after that. Luckily, my husband and I both have state pensions and an assortment of annuities and 401Ks.

SAM FRIEDMAN: What we emphasize in our report is this is not a retirement plan. A 401Kis a tool, it’s a vehicle, it’s an account. It’s not a retirement plan.

TANYA OTT: Sam says “a plan” is something you put together to anticipate how much money you’re going to need to live on when you retire and what kind of investments you’re going to make to make sure you get there.

SAM FRIEDMAN: What is your long-term care needs going to be if someone in your family becomes seriously ill? Is there life insurance protection in case of premature death because nothing can upset plan more than someone thinking they’re going to work until they’re 70 and unfortunately they pass away at 62 or something like that? So, where does that leave your family? There may be a layoff in your late 50s and you may find it difficult to find another job or at least one with the same kind of pay. So how do you build that into a retirement plan?

TANYA OTT: The research suggests many people who don’t have a plan may not have one because of the competing financial priorities in their lives. Another barrier is trust. Or the lack of it, says Val Srinivas.

VAL SRINIVAS: You know, almost 80% feel that their primary financial professional is highly trustworthy; compared to their own primary financial institution – a bank or insurance company or risk management firm – and as you make that broader and go from a specific individual, a specific company, to generally all types of financial professionals or the financial services industry, the level of trust declines quite rapidly.

TANYA OTT: Less than half of survey respondents said family and friends are very trustworthy when it comes to financial advice. And only 15% of respondents highly trusted what they read in the media.

VAL SRINIVAS: I think it’s the fact that you know there’s a lot of information, maybe too much information in some respects. If you look at any general interest magazine there’s advice on how to save, how to save for college, whatever’s the case. I think the difference now is the extent of information and advice that’s available, which is not always consistent coming from different sources.

TANYA OTT: That lack of trust can lead some people to go it alone. DIY Retirement Planning. The Deloitte Center for Financial Services survey finds that just over half of respondents don’t use a financial professional, either because they don’t trust them, they think they can’t afford one or they just want to do it themselves. This is true even among those with high net worth. Of the respondents with a net worth of at least $1 million, nearly a third say they have not consulted a professional for their retirement needs. And that can be a problem, especially as the number of investments products increases and they get even more sophisticated.

VAL SRINIVAS: I can tell you that even though I’ve been in the financial industry for quite some time, I myself am confused about some of the options. So it’s too much information. Sometimes conflicting information. It’s maybe information that’s not tailored for me and as products become more complex, such as annuities’ lack of product familiarity becomes a huge barrier.

TANYA OTT: Another barrier? Perhaps better communication is needed about the myriad options. So, what’s a consumer to do? And how can the financial services industry help them? Remember our “solutions guy” from earlier?

SEAN CUNNIFF So, I’m Sean Cunniff and I am research leader for investment management practice at Deloitte Center for Financial Services.

TANYA OTT: Sean says companies can consider a number of practical options to encourage employees or customers to save more for retirement. One would be to have automatic enrollment in a retirement plan at work. You’d have to consciously choose to opt-out.

SEAN CUNNIFF The challenge is that not every plan sponsor is comfortable. However, there are other things that plan sponsors can do if they’re not comfortable on the opt-in front. And those are things like they can have a policy where everyone in the plan has to make a choice – so, you either have to choose enroll or you have to choose to not enroll.

TANYA OTT: There’s also “quick enrollment.”

SEAN CUNNIFF Where you have it set up so an employee can enroll at like a pre-selected rate in asset allocation. So instead of having them have to go and say, well, how much am I going to save? You just have a few options kind of already established and they just have to choose one of the options.

TANYA OTT: But, Sean cautions, the financial industry cannot just push products.

SEAN CUNNIFF What it really boils down to is instead of viewing the customer through the lens of your products and services, you want to view the customer from where they are in their life and kind of understand that they have all these competing priorities, they have all these pressures

TANYA OTT: Is that a mind shift for many firms? You bet!

SEAN CUNNIFF Historically, the way a lot of large firms are structured is they’ll have the institutional arm that offers 401K retirement plans and they’ll have a retail arm, it’s a wealth management arm, they will have a mutual fund arm. And these firms historically have come up independently and they don’t have a lot of overlap. So to bring all of that together as well as the outside factors like health care and tie it into all of the protection assets on the insurance side, from an operational standpoint it’s actually very hard to do.

TANYA OTT: Companies need to consider how they can tear down silos. Or at least work across silo walls.

SEAN CUNNIFF Like each of these silos of the institution has its own technology platform. They often fall under their own regulatory environment. We truly understand that bringing all of that together is hard. And if it were easy it would already be done. But at the end of the day what we’ve seen in the research is that that is what is most likely to help all of the consumers.

TANYA OTT: Like many industries, the internet has opened up new opportunities — and challenges.

SEAN CUNNIFF Historically in the wealth space a lot of the advice has been offered person to person and face to face. That is a very effective way to offer advice, but it’s also an extremely expensive way. And because of that advice tends to only be offered to individuals who have a certain amount of assets. So you’ve got a whole pool of the population, a lot of them are like starting out just out of college, and what those young people have is they have the time to save. And studies have shown the most important thing you can do is just start to save as early as possible. But the financial industry hasn’t paid a whole lot of attention to those people because it hasn’t been economically possible for them to serve all of that audience in a cost-effective way. So they can use things like the internet, email, phone and all the mobile tools and be able to push information out to this younger audience and offer advice and offer automated tools in algorithms to really scale up advice to be able to offer it in a profitable way to a much larger audience

TANYA OTT: Sean says some companies are experimenting with text messaging and even doing virtual consultations.

SEAN CUNNIFF We’re also seeing some very large institutions start to offer what we are referring to as the technology-enabled advice offerings. Where people can get advice in a financial plan at a very low cost way and they don’t ever interact in person.

TANYA OTT: But, he says, the law isn’t necessarily keeping pace with the new technology.

SEAN CUNNIFF We have seen a lot of the growing pains. I would say that the law is much, much slower than all the evolution on the technology front and there have been a lot of challenges with institutions and advisors trying to use things like all the social media websites, email, texts, because of the law and the regulation around that. So, for example, all of the communications between an advisor and a client will fall into a category: it’s either advertising or its solicitation. And depending on the category there are certain rules and regs about what has to be pre-approved, what has to be stored, and it can be very challenging for the industry to allow their advisors to have access to all those tools and at the same time trying to comply with all of the regulations.

TANYA OTT: Still, Sean Cunniff and his colleagues agree it’s worth it to think creatively, proactively, and holistically about how to engage consumers around retirement planning.

SEAN CUNNIFF The retirement problem is such a large problem and it’s such an important problem that it will likely not go unsolved. And if the industry does not solve it then it will very likely get solved in a way that they might not be all that comfortable with. If the industry solves the problem it means that you have more people who are going to be good customers. So there’s a very bottom line economic reason to solve the problem.

TANYA OTT: What can financial institutions and advisors do? You heard some ideas in today’s podcast, but there’s plenty more in the new “Making Retirement Security a Reality” report from the Deloitte Center for Financial Services, part of Deloitte Services LLP. You can find the full report at I’m Tanya Ott for The PressRoom, a production of Deloitte University Press.

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