Benefits September 30, 2014

Gen Y Looks to Personal Network for Advice

September 30, 2014 (PLANSPONSOR.com) – Workers in Generation Y want advice on budgeting, saving and how to manage student loan debt, says TIAA-CREF, but they aren’t necessarily eager for professional advice.
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A new TIAA-CREF survey finds Gen Y relies predominately on personal networks for financial advice, with adults ages 18 to 34 being more likely than the general population to involve their parents (47% vs. 19%), extended family (22% vs. 14%) and other trusted adults (31% vs. 21%) in their search for advice. Thirty-seven percent also involve a spouse or partner to help with their finances.

TIAA-CREF’s annual Gen Y Advice Matters Survey shows Gen Yers are actively planning for their financial future. Of those who sought out advice, many expressed an interest in creating and managing a formal budget (72%), saving for education (65%), or managing their outstanding student loans (53%).

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When it comes to financial advice, TIAA-CREF says it’s not just the topics but also the delivery method that matters to Gen Y. The majority (55%) of Gen Y said their first choice for receiving financial advice is face-to-face, though that number dropped from 65% in 2012 as more Gen Yers selected online advice as their first choice. Seventy-nine percent of those surveyed say it would be helpful to have advice that’s customized for their age group, and they are more likely to say they value online tools and calculators than the general population (74% vs. 57%). Gen Yers are also more likely to value seminars (68% vs. 53%) and webinars (67% vs. 54%) as channels for professional financial advice.

“Gen Y gives new meaning to the term connected,” explains Kathie Andrade, executive vice president and head of individual advisory services at TIAA-CREF. “It’s important for them to access financial advice via multiple platforms. While this may present a challenge for financial advisers, plan sponsors and employers, it also offers multiple opportunities for them to engage with Gen Y and speak their language when it comes to financial topics.”

According to Andrade, the survey also found individuals who seek advice are invested in their financial well-being and tend to make positive changes after getting professional guidance. Gen Yers, for example, are 12 percentage points more likely to monitor their spending frequently compared to the general population (75% vs. 63%). They are also 14 percentage points more likely to change their spending habits (76% vs. 62%) and increase their monthly savings (70% vs. 56%) after getting professional advice.

As Gen Yers look to their parents for help, they may be learning from their parents’ experiences and trying to find financial stability earlier in life. Only 57% of those ages 55 to 64 said they feel optimistic about their finances, and many said they are encouraging their children to take more aggressive action on saving and investing than they did.

“Gen Yers understand how to leverage financial advice to their advantage,” Andrade adds. “They make concrete changes to their financial well-being early on that can help them prepare for the future and think ahead to retirement.”

TIAA-CREF says Gen Yers who have received professional financial advice continue to rely on their personal network on an ongoing basis, which demonstrates that they value personal relationships in dealing with financial issues. The findings revealed that 70% consistently turn to their family and friends, 45% look to their employer, and 17% turn to social media on a regular basis. More than half (51%) of the survey respondents also take advantage of financial service provider websites or other online tools.

TIAA-CREF has developed a website geared toward the needs of young professionals, called Starting Your Financial Life. The Advice Matter survey was conducted by an independent research firm and polled a random sample of 1,000 adults nationwide to assess their attitudes, preferences and behaviors about receiving financial advice. An executive summary of the survey is available here.

Benefits September 30, 2014

Employers Look to Enhance 401(k) Investments

September 30, 2014 (PLANSPONSOR.com) – A new study finds many U.S. employers are replacing single, stand-alone investment options with multi-manager, “white-labeled” choices that can be easier for participants to use and understand.
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According to the Towers Watson 2014 Defined Contribution Survey, many plan sponsors are also implementing custom target-date fund (TDF) solutions and outsourcing some or all of their daily 401(k) plan oversight. So-called white-label investment options are built in one of two ways. The first is simply to take a singular fund and make the name generic on the investment lineup presented to participants. For example, instead of listing the “BlackRock U.S. Aggregate Bond Index,” the fund would be presented to participants as the “U.S. Bond Index fund.” The second strategy is more robust and involves working with an adviser or investment manager to build a fund-of-funds approach, through which a plan offers participants a pre-mixed fund option, for example, one called the “Large-Cap Equity fund.”

“Employers are taking a close, hard look at the investment structures of their defined contribution (DC) plans, given the impact plan structures can have on the retirement outcomes,” explains Sue Walton, a director in Towers Watson’s investment business. “In addition, many plan sponsors are beginning to embrace more complex and sophisticated strategies and structures as the challenge of meeting participant and plan needs increases.”

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According to preliminary results from the Towers Watson DC survey, 40% of U.S. employers surveyed feel that using a multi-manager, white-labeled investment strategy is a more efficient approach to active management than relying on a larger number of single, standalone active options. Additionally, about half of the employer-respondents “see the value of custom TDFs,” Towers Watson says.

Walton adds that the survey results suggest plan sponsors are increasingly reluctant to offer their participants extensive and complex lineups of investment options. Instead, employers are looking at investment strategies that promote fewer options with much greater built-in diversity. Walton says the white-label fund-of-funds approach makes sense when considering the general lack of investing expertise and engagement among workplace retirement savers.

According to the Towers Watson survey, 22% of plan sponsors have already implemented a custom TDF solution, while 27% say they will consider implementing one at some point in the next few years. As the firm explains, a custom TDF allows a plan sponsor to unbundle key features of the TDF for better alignment of the glide path and portfolio allocations according to participant demographic needs.

Lorie Latham, also a director in Towers Watson’s investment business, says the firm believes the Department of Labor’s release of TDF tips has influenced plan sponsors to evaluate custom TDF solutions as a viable alternative.

“Plan sponsors also understand the importance of their TDF offering and know they need to get it right,” Latham adds.

According to the survey, a growing number of plan sponsors are outsourcing the oversight of their DC plans. One-third of respondents currently delegate either all or a portion of their plans’ oversight, or may be interested in doing so.

“With DC plans now requiring more time and expertise from plan sponsors than ever before, it’s not surprising to see that the outsourcing of plan oversight is gaining traction,” Walton says. “As the investment opportunity set becomes increasingly more complex and the stakes get higher for the success of DC plans, employers need to consider the right governance equation, which may include seeking third-party partnerships.”

Towers Watson says these findings are based on a preliminary review of the DC survey responses. The full survey results will be available in October.

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