The American People’s Stance on The Fiduciary Standard

Financial Engines has been a strong supporter of the U.S. Department of Labor’s (DOL) proposed Conflict of Interest rule, which would require professionals who offer retirement investment advice to serve as fiduciaries to their clients—legally requiring them to put the best interest of their clients ahead of their own. In fact, we’ve been serving as a fiduciary for our clients since our founding 20 years ago.

With the DOL expected to issue its final version of the rule any day now, we surveyed more than 1,000 Americans to learn more about how important conflict-free investment advice is to them, as well as their understanding of the proposed rule. We found that while the general public may be unfamiliar with our industry jargon, they are overwhelmingly supportive of leveling the playing field and requiring financial advisors to work in their clients’ best interests.

Key findings from the survey, “In Whose Best Interest? What Americans know and what they want when it comes to retirement investment advice,” include:

  • A majority of American adults (66%) say they do not know what a “fiduciary” is when it comes to financial advisors.
  • Almost half (46%) of American adults mistakenly believe that all financial advisors are fiduciaries who are legally required to put the best interests of their clients first when it comes to retirement.
  • Among adults who already work with a financial advisor, a large portion (41%) are not sure if their advisor is a fiduciary or not.
  • 93% of Americans said it is important that all financial advisors be legally required to put their clients’ best interest first when providing advice on retirement savings.
  • 77% of American adults said they would support requiring all financial advisors who provide advice on retirement assets to be legally required to put their clients’ best interest first.

While it’s still unclear how the rule will net out, it’s clear that people believe the underlying intent of the conflict of interest rule is important, and support the notion that financial advisors should be legally required to put their clients’ best interest ahead of their own.

Are you using target-date funds correctly or shooting yourself in the foot?

New Financial Engines Research Shows Why 401(k) Participants Move Away from Target-Date Funds Over Time

Today, we released a new report, (“Not So Simple: Why Target-Date Funds Are Widely Misused by Retirement Investors”) that reveals why 401(k) participants tend to move away from target-date funds as they age and accumulate more assets. Surprisingly, it’s not for lack of understanding about how target-date funds work.

Check out our infographic below for an overview of the key findings and what you can do to make sure you’re not shooting yourself in the foot when investing your 401(k).

What Do 401(k) Investors Want Next? An Advisor on Their Side [infographic]

Technology has helped make investing easier than ever, but it can be frustrating when you just want to talk to someone about your money. Our new research finds that consumers want more than technology: they want a real, human financial advisor in their corner.

We offer that help at Financial Engines.

To learn more about what people had to say, we put together this infographic illustrating some of the findings from our latest research report, “The Human Touch: The Role of financial advisors in a changing advice landscape.”


American Employees: Are You Leaving Money On The Table?

If your boss wanted to give you a $1,300 bonus on the spot, you’d take it, right?

A surprising number of Americans actually don’t. Many employees are offered that incentive in the form of a 401(k) match and for whatever reason, end up turning it down. Our new research report estimates that Americans are likely to leave a total of $24 billion in unclaimed 401(k) company matches on the table each year.

We arrived at this startling number by looking at the saving records of 4.4 million retirement plan participants at 553 companies. We found that one in four employees (25%) miss out on receiving their full company 401(k) match by not saving enough on their own. The typical employee who fails to receive the full match leaves $1,336 of potential “money” on the table each year. For the average employee, that’s an extra 2.4% of missed annual income. (See infographic for more.)

With compounding, this could amount to as much as $42,855 over 20 years!

Why do so many employees miss out on potentially receiving thousands of dollars every year?

Employees tend to save more for retirement as they age and earn more money. For example, 42% of plan participants earning less than $40,000 per year do not take full advantage of their employer match. That compares to just 10% of employees who earn more than $100,000 annually. Likewise, employees under age 30 are approximately twice as likely to miss out on their employer match compared to employees over the age of 60 (30% vs. 16%).

For many employees, middle age poses additional savings challenges. We found that the steady decline in employees missing out on their match is interrupted between ages 35 and 45, when the rate of decline flattens out. While we didn’t specifically look at why this savings dip occurs, it may have to do with the growing costs of raising a family, saving to send kids to college or buying a home.

Advisory Services Provide a Helpful Nudge

Our report showed that employees across all ages and income levels who used advisory services were less likely to miss out on any of their employer match compared to those not receiving this help. For example, 25% of employees who earn less than $40,000 and who use professional advisory services missed out on part of their employer match, compared to 44% of people who did not use advisory services.

What can you do to make sure you’re not missing out?

Know your plan.

Find out how much your employer will match your 401(k) contributions and strive to save at least enough to get the full match.

Get professional help.

If you have access to professional investment help (online advice or managed accounts), take advantage of that benefit.

Ask a financial advisor.

Talk with a financial advisor who has a legal commitment as a fiduciary to put their clients’ interests ahead of their own.

Commit to save more when you can.

If you can’t afford to save enough to get the full match today, increase your savings rate when you get your next raise — and each raise thereafter — until you reach your 401(k) contribution limit.

Greg Stein, Financial Engines director of investment technology, had this to say about the report and the importance of saving enough to get the full employer match:

“The 401(k) match is one of the best deals going for employees, providing an immediate 100% return per dollar invested. Maximizing your available 401(k) match is a key way for millions of American employees to improve their retirement security. While many people might feel like they can’t afford to save more, we hope that these numbers help them realize that they can’t afford not to.”

Why Getting Investment Help Matters to Your Future

What if there was a simple way to increase your retirement wealth by more than 75%?

Our recent study with AON Hewitt found that people who participated in their employer’s 401(k) plan and used some form of professional help did better than those who chose to manage their portfolios on their own.*

Consider this example. Two 401(k) plan participants each invest $10,000 starting at age 45 and receive the median returns for each age segment found in our study up to age 65. Now let’s assume that Participant A got some form of professional help, either from a target-date fund, professionally managed account or online advice. Participant B did not.*

Our study found that, under this scenario, Participant A could end up with $58,700 from that initial investment by age 65, compared to $32,800 for Participant B. That’s more than a 75% difference in retirement wealth for the investor who got help.

Why is that the case? Our study found that people who don’t get professional help are more likely to take on too little or too much risk. In fact, we observed that more than 60% of 401(k) participants who didn’t use help had portfolios with inappropriate risk levels. Of those, approxi­mately two-thirds were taking on too much risk, and about one-third were taking on too little risk, jeopardizing their ability to accumulate sufficient re­tirement wealth.

So what’s a simple way to increase your retirement wealth substantially? Get Help.

* Within the Help group managed accounts and online advice are provided by Financial Engines Advisors L.L.C. The data for the research are drawn from 14 large 401(k) plans. All returns reported in the research are net of fees, including fund specific management and expense fees, and managed account fees. Please access the report for a full description of the methodology and data used.