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.