It's never too early or too late to save for retirement. But, for a variety of reasons, many people don't do it.
New research from Fiserv found only 57 percent of consumers are putting money away for retirement, and among those who do, many are not confident they're saving enough or doing it the right way.
That lack of confidence shows up in many ways. Expectations & Experiences: Borrowing and Wealth Management, the consumer trends survey from Fiserv conducted by The Harris Poll, found less than half of U.S. consumers (41 percent) feel informed when it comes to saving for retirement, and only 35 percent feel optimistic.
Due to the shift from defined benefit pension plans to defined contribution plans, most people now shoulder the responsibility and risk of funding their own sustainable retirement income. Yet the survey found only 36 percent of households have more than $100,000 in investable assets; 26 percent have less than $10,000.
What will it take to change those investing perceptions and behaviors? Cheryl Nash, president of Investment Services for Fiserv, said it will take an industry commitment to financial literacy, including programs that help people understand how money decisions affect retirement.
"It starts with early discussions about investing, 401(k) contributions, mindful budgeting and goal setting," Nash said. "People who have money to invest and the opportunity to work with a financial advisor are having those important conversations and are more likely to realize their financial aspirations."
Beyond education, there's another challenge at play: procrastination, Igor Jonjic said. The Fiserv product manager said the overwhelming number of readily available options and choices, plus the perceived complexity of investing vehicles, cause many people to delay investing or give up entirely.
"We have more information and tools at our fingertips than ever before, but many would-be investors are paralyzed by the choices and end up doing nothing," he said. "Investment platforms make it easier to get in and out of the market, but people of all means and backgrounds need help connecting investment components into a comprehensive, sensible plan that people can easily follow and act on."
The reality is that 44 percent of consumers don't feel they're getting the financial advice they need. Closing the investing gap will take a concerted effort from financial advisors, employers, financial health advocates, the industry at large and, of course, would-be investors.
Here are three ways financial advisors can help people achieve their investment goals:
Only 28 percent of consumers use a financial advisor. That's unfortunate because it can make a big difference. Eighty-one percent of those who use an advisor are confident they're getting the financial advice they need.
But finding confidence in the process takes more than just sitting across the desk from someone. Many investors want a new wealth management experience. Advisors are responding with a holistic approach to financial services – one that takes into account every aspect of a client's financial life.
A survey of wealth management providers by Cerulli Associates found the proportion of advisors' clients receiving comprehensive ongoing advice grew from 33 percent in 2013 to 47 percent in 2017. When prospective clients were asked what factors are most important to them when seeking a new advisor, 67 percent cited an advisor's willingness to spend the time necessary to understand their needs and goals.
Advisors increasingly look to technology to free time for substantive conversations about progress, goals and concerns, a process that benefits investors and advisors. Cerulli has consistently found that the amount of time an advisor spends in client-facing activities is highly correlated to a practice's success.
"Financial planning isn't an event, but an ongoing, collaborative process with periodic progress check-ins and adjustments," said Scott Smith, director of advice relationships for Cerulli. "Advisors put so much time and effort into being portfolio managers. Instead, their value proposition – the real differentiator – is using technology to help clients' meet their short- and long-term financial goals."
According to the Fiserv research, one in four consumers invest for goals other than retirement, such as college, travel or home repairs. Setting and achieving smaller financial goals keeps investors motivated and engaged – and boosts their confidence in the process.
"A good financial advisor paints the picture of what your life could be," Jonjic said. "Advice may now be easier to come by, but finding objective, reasonable and individualized advice is more difficult. Those who are left on their own to invest are still struggling."
Even so, people who don't work with an advisor aren't typically keen to do so. Just 11 percent of those consumers said they are highly interested in working with a professional financial advisor. Changing that stance will go a long way toward changing the number of people who are saving for retirement.
Forty-six percent of millennials (ages 18 to 37) aren't saving for retirement, and among those who do, less than half (39 percent) are confident they're saving enough.
Millennials have unique saving and investing challenges. Smith said many are dealing with the aftereffects of watching their parents' portfolios lose substantial value during the recession. Plus, he said, finding money to invest is difficult due a lack of affordable housing and, especially for older millennials, lingering student loan debt.
They need help and counsel. Twenty-one percent of late millennials (ages 27 to 37) say they're not getting all the financial advice they need. Of that age group, just 25 percent work with a financial advisor and most (61 percent) get advice from family, friends and coworkers. Compared to other generations, early millennials (ages 18 to 26) are most likely to cite knowledge barriers as a reason for not using a financial professional, including not knowing how a financial advisor would help (20 percent) or how to find one (22 percent).
"The perception is that millennials don't want to talk to advisors, that they only want virtual advisors," Nash said. "But this generation is longing for guidance."
Employers, financial institutions and advisors can offer educational programs and financial literacy initiatives geared toward younger investors. Small changes often make a big difference. For example, when new hires must "opt-out" versus "opt-in" to their 401(k) plans, increased participation naturally follows.
Providing socially responsible investing options is another important way to engage younger investors. Nash said millennials are more likely to focus their investments in companies that track with their personal beliefs and ideals, and some consider diversity when choosing an advisor. As a result, many advisory firms now identify securities that closely adhere to various social, moral, religious or environmental beliefs.
Most advisors take the long view with younger investors. They're engaging early to build lifelong, mutually beneficial relationships.
"If you're a 30-year-old, your portfolio isn't the biggest financial question for you," Scott said. "You're probably in the middle of getting married, buying a house, having kids – all those important decisions that aren't purely about finances but that have important financial impacts. We need to help younger investors take the right steps to optimize their financial futures."
Among consumers who don't use an advisor, 35 percent say it's because they don't have enough money. Whether that perception is true, digital platforms and tools are making wealth management accessible to nearly all income brackets and providing an entry point for new investors.
"Technology has made investing easier and more approachable," Jonjic said. "Many advisors work with only high-net-worth individuals, but there's a growing focus on mass markets, due in part to digital advising."
Nash agreed there's a push to get more people involved in managing their finances and saving for retirement.
"Digital advising platforms enable investors to save without necessarily paying an advisor fee or talking to an advisor," Nash said. "Technology doesn't take the place of a financial advisor but can give investors, particularly those with fewer investable assets, enough information to start investing."
Nash said she is pleased to see the industry working harder to achieve gender diversity and reach people of diverse cultures and backgrounds. Firms are placing a greater emphasis on diversity in hiring, and there's been a rise in investment firms focused only on women investors or other specific demographics.
"Many financial advisors are interested in diversity and inclusion in their client base but may not understand pre-existing biases," Smith said. "Advisors may assume their campaigns and content appeal to everyone when, in fact, their approach is geared to the target market they've always pursued – 50-year-old white men."
Technology is quickly changing how people manage money and invest, and it's bringing dramatic shifts to financial advising. Be assured, however, that there will always be a need for advisory relationships that help investors of all ages and means grow confident in the financial choices they're making.
"It's not that 43 percent of people don't want to save for retirement," Smith said. "They may see the benefits but may not have the income, resources or advice they need to start."
Helping people save for retirement is not just about monitoring portfolios. It's about helping people take the first step and begin thinking about how their income, expenses and choices help them reach their goals and influence long-term financial health.
For additional perspectives on the hottest topics in financial services, learn more about Forum 2019 where we shared best practices, gained valuable insights and connected with the best and brightest in Fintech.