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Executive Calls On Advisors To Rescue Workers

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Financial professionals should promote automatic 401(k) plan enrollment and other strategies to save Americans from a looming retirement income shortfall.

Norman Malo, president National Financial Services L.L.C., delivered that message here at the annual meeting of LIMRA International, Windsor, Conn.

National Financial is a division of Fidelity Investments, Boston, that sells clearing services, technology services and other services to broker-dealers, investment firms and other clients.

Malo cited a forecast from the Employee Benefits Research Institute, Washington, suggesting that Americans might have $400 billion less retirement income than they need from 2020 to 2030.

“We need action now, and that suits me fine,” Malo said. “The next few years are exceptionally exciting for everyone in financial services. We will be bringing boomers into to a safe landing in retirement.”

The financial services industry can help steer defined-contribution plan participants around typical investor mistakes, such as panic selling near the bottom of a market or buying at a stock’s high, Malo said.

That “whipsaw effect” was responsible for cutting investors’ annualized returns on stocks and mutual funds to just 6% from 1956 to 2006, during a period when the average increase in the Russell 3000 stock index was 11.5%, Malo said.

“Helping close that gap could be the strongest service financial professionals could deliver,” Malo said.

One way, Malo said, is for financial professionals to push employers to offer “opt-out” defined-contribution plans that automate both enrollment and annual contribution increases.

“The dominant force in workplace savings is inertia,” Malo said. “If the employer picks the right default options, the power of inertia can work to increase benefit levels.”

Fidelity analysis has shown, for example, that employees ages 20 to 29 might end up replacing only about 15% of preretirement income with a conventional opt-in plan and about half of preretirement income with an automated, opt-out plan, Malo said.

Encouraging employees to work with investment advisors or to invest in target-date funds, target-risk funds and balanced funds also could help, Malo said.