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5 tips on 'meeting the retirement challenge'

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Close to 40 percent of people surveyed said that they did not know anything about annuities or understand how they work. The percentage, which is markedly higher among younger respondents, attests to the inability of the industry to convey not only the operational mechanics of the products they sell, but also the fundamental basics about what they are.

Released as part of Deloitte’s Center for Financial Services’(Deloitte) report, “Meeting the Retirement Challenge: New approaches and solutions for the financial services industry,” the finding illuminates the hurdles the industry faces in preparing people for retirement as well as the dearth of knowledge in the general public regarding adequate financial planning.

In an effort to help the financial services sector get a handle on the problem, Deloitte surveyed nearly 4,500 consumers of varying ages and economic backgrounds. The survey yielded five major barriers that stymied efforts by the industry to adequately prepare the population for retirement.

Deloitte suggests that the industry needs to take a more holistic approach to the issue which will require changing the attitudes of those who design, market and sell retirement products as well as the public who purchase them.

The first of the barriers identified by Deloitte is the “conflicting priority” barrier. The study found, across all age groups, that most Americans consider retirement their most pressing concern. However, 40 percent of respondents reported that other financial priorities pop-up, derailing their retirement-savings goals. Paying off a mortgage, student loans and saving for a child’s education are some of the major life events that weaken retirement saving. It should be noted that after retirement, the second most important priority is saving for health-care expenses. Deloitte notes that concern over health- care costs, especially among older survey respondents closer to retirement is one of the major factors that distract consumers from adequately preparing for retirement.

Competing financial priorities can cause consumers to become overwhelmed. They often view their financial responsibilities as siloed and deal with them in a disjointed fashion. Just one in five survey respondents said that they view their financial priorities as being interconnected. Deloitte encourages those within the industry to overcome the “conflicting priority” barrier by offering clients a more holistic approach.

The second barrier the report identified is the “communication barrier.” Consumers, especially those in the lower income brackets are not being properly engaged by financial services providers. Six in 10 of those surveyed stated that they have had no interaction with a financial services institution over the last two years. Half of those between age 56 and 64 said that no one had been in touch with them pertaining to retirement planning and fewer than one in four of those with a 401(k) plan have been contacted by an industry professional.

This is not a new finding and unfortunately the industry has been too rigid to change. Part of the problem is the manner in which compensation is doled-out — producers chasing a higher commission from the affluent ignore the middle market leading to the oft-reported and well-publicized, “underserved middle market.” Sam Friedman, Research Leader, Insurance for Deloitte’s center for Financial Services said, “Everyone is in the same small pool fishing for the whopper. Maybe nets need to be cast wider and folks that many would think to throw back can be nurtured and grow with the producer.”

The survey found that the wealthier an individual is, the more likely they were to be contacted by a financial professional.

Although the workplace has become the most natural venue for consumers to acquire retirement savings products — four in 10 between the ages of 26 and 45 cited an affiliation with their employers as the main reason for choosing the financial institution to assist them in reaching their retirement needs — the survey found that half of those people were either not being offered retirement advice through their plan provider or did not know if such advice was available.

Oddly enough, 57 percent of those respondents who were offered advice through their workplace plan provider did not take advantage of the opportunity.

The industry is not entirely to blame for the hands-off approach in the workplace. With changes brought about by the Pension Protection Act of 2006, many employers are wary of incurring liabilities from providing investment advice in the workplace.

Deloitte feels the “communication barrier” can be overcome by a mix of diagnostic tools offered through workplace marketing, work on the regulatory front that allows plan providers more flexibility to address employee retirement needs and leveraging the channel through auto-enrollment opportunities.

The “product awareness” barrier is yet another identified by the report. What could be the most well-known and obvious hurdle for the industry, the “product awareness” barrier should also be the easiest to fix. To put it bluntly, consumers do not buy products they don’t understand. Annuities addle them, (hinting that the Annuity Puzzle will not be solved anytime soon), and 25 percent of those surveyed are not aware of the retirement implications for non-term life insurance. The financial services industry does not have to prep every individual to make them an expert but Deloitte feels that a certain level of rebranding coupled with educational outreach can render the “product awareness” barrier as one of the easiest to overcome.

The fourth hurdle for the industry is the “trust barrier.” The survey found that lack of trust was another reason consumers are resistant when it comes to allowing financial institutions to take control of their retirement planning. The survey found that general public does not trust financial institutions across the board, not just when it comes to retirement planning specialists. No more than two in 10 respondents reported having a high degree of trust in any financial institution. Intermediaries did not fare much better with only 15 percent of respondents saying that had a high level of trust in financial advisors, while 11 percent of respondents said they had a high level of trust in insurance agents and brokers.

It may be easy to assume that this trust was tarnished if not completely lost during the financial crisis but that may be a bit of scapegoat, Friedman said. Deloitte found that part of the sense of distrust is derived from a fear of loss of control. Twenty percent of survey respondents stated that they don’t trust intermediaries to provide objective advice to address their retirement savings and income needs.

However, among respondents that do have formal plan for retirement, 83 percent have used a financial advisor to put that plan in place.

Deloitte also found that the trust issue permeates the way consumers feel about certain products as well. Three in 10 respondents said that they do not trust financial institutions that offer guaranteed income of being able to deliver on that promise.

Although the “trust barrier” may be one of the tougher obstacles to overcome, Deloitte feels that the industry can win the trust of the consumer by using personal resources such as family and friends to ferry communication about retirement planning matters. Social media strategies should also be implemented along with discussing retirement planning within the context of other financial and lifestyle concerns.

It would also behoove the industry to reach out to prospects at a young age in order to cultivate not just trust but also a sense of brand loyalty. Unfortunately, this comes back to too many producers chasing the ultra-affluent. Deloitte cautions that even in this age of virtual communication the preferred method of gaining trust should be through face-to-face interactions.

The fifth and final barrier that the report identified was the “do-it-myself” barrier. Close to two-thirds of those surveyed and about three-quarters of those 15 years or more away from retirement do not consult with a professional financial advisor for their retirement needs. Fifty seven percent of respondents replied that they were comfortable with handling their own retirement planning; 38 percent said they don’t trust a financial advisor; 13 percent said they worked with a financial advisor and were dissatisfied with their performance; 12 percent said that they could not afford the services of a financial advisor while 4 percent said they don’t know who to go to for retirement planning. Four percent of respondents gave other reasons for wanting to do it themselves.

Deloitte feels that the “do-it-myself”obstacle can be overcome by targeting non-consumers of professional advice, and converting them to advice-seekers. Also, allowing the consumer to maintain some level of control could be helpful. This can be done if intermediaries and producers present themselves as enablers and facilitators rather than sole decision-makers.

Convincing those who want to go their own way to incorporate a professional into their retirement planning may be made easier through clever and effective advertising and marketing efforts. Friedman sugggested taking a page from Property & Casualty insurers’ advertising campaigns. The memorable characters and catch-phrases have inserted themselves into pop culture much more successfully than the gloom and doom and scare tactics of retirement planning companies.

Despite the $1.14 billion dollars in advertising spent to engage the general public in retirement planning, the level of unpreparedness remains startling. However, Deloitte cautions that the blame should not rest solely on the shoulders of the industry, the government, employers and the individuals themselves have their own important roles to play.



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