2022 Advisory Solutions: Expectations and Experiences - PART 1: EMERGING RETIREMENT PLANNING GAPS IN A POST-PANDEMIC WORLD
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In association with 2022 Advisory Solutions: Expectations and Experiences PART 1: EMERGING RETIREMENT PLANNING GAPS IN A POST-PANDEMIC WORLD
Part 1: Emerging Retirement Planning Gaps in a Post-Pandemic World Retirement planning is no longer what it used to be as COVID-19, geopolitical, and economic volatilities continue to disrupt livelihoods around the world. Post- pandemic investor attitudes and markets are also set to pose new challenges for wealth managers and advisors. Based on survey feedback from over 1,500 mass-affluent and high-net-worth investors in March 2022, our latest research insights identify the ways in which they are navigating today’s circumstances to achieve their retirement goals tomorrow—and how advisors can help their clients along the way. 2022 Advisory Solutions: Expectations and Experiences—PART 1: Emerging Retirement Planning Gaps in a Post-Pandemic World 2
THE IMPACT OF THE GENERATIONAL GAP
To be successful in meeting the needs of a diverse client base, it is critical that advisors
understand the dreams, expectations, and concerns of each client segment, since
these vary dramatically by life stage and, to some degree, by gender. Pandemic-
related implications must also be taken into account as a growing number of investors
and advisors opt for early retirement. With global life
expectancies and inflationary pressures increasing faster
than ever, there is a pressing need for wealth management
The pandemic has caused
firms to respond by providing the best advice to their clients
a real shift in peoples’
on retirement while also managing their own impending
priorities, increasing the
talent shortage as advisors retire.
value placed on time and
experiences over money.”
According to our survey, one in five investors expect to retire
—Ainslie Simmonds,
earlier than planned before the pandemic, largely driven
President of Pershing X
by 45% of younger (under 35) investors (Exhibit 1 on page
4). In fact, 65% of under 35-year-olds expressed a desire to
retire by the age of 55 and a further 21% by the age of 62. Many of these investors also
benefited financially during the pandemic, with 24% of those surveyed having increased
their expected retirement budgets—a number that rises to 54% among investors under
35 years old and 41% of crypto-investors. On the other hand, COVID-19 has also left a
significant group of investors worse off, with one in five investors indicating that their
future retirement budgets have declined because of the pandemic. It is critical that
advisors test the realism of client expectations and develop pragmatic plans to help
them achieve their goals.
2022 Advisory Solutions: Expectations and Experiences—PART 1: Emerging Retirement Planning Gaps in a Post-Pandemic World 3Exhibit 1: Investor Retirement Expectations
% of investors expecting to retire earlier than planned because of the pandemic
Has the pandemic accelerated your retirement plans or delayed them?
50 (%) I expect to retire sooner than originally planned
45%
40 41%
39%
30
24%
23%
20 OVERALL
19%
16%
14%
10 11%
7%
1%
0
Less than 35 to 44 45 to 54 55 to 59 60 to 64 65 to 69 70 and Female Male User Non-user
35 above
AGE GENDER CRYPTO USAGE
Source: MMI-Aon 2022 Investor Expectations Survey
Interestingly, advisors are more conservative than investors when it comes to their
expected retirement age, with only 21% expecting to retire before 63 and 43% expecting
to work until the ages of 68 to 75.
Seeing that one in five investors have lowered their
standard of living and expectations of retirement
should be a wake-up call to our industry. It shines a
bright light on the risks of a failed financial strategy and
highlights the importance of building a financial plan that
incorporates solutions that help address the many risks
facing today’s investor.”
—Corey Walther, President of Allianz Life Financial Services
2022 Advisory Solutions: Expectations and Experiences—PART 1: Emerging Retirement Planning Gaps in a Post-Pandemic World 4INCREASING INVESTOR CONFIDENCE
VIA FINANCIAL PLANNING
Despite their aspirations, only 43% of investors are very confident of achieving their
retirement goals (Exhibit 2). Younger male investors are the most optimistic in terms
of early retirement and expected returns, driven largely by their enthusiasm for
cryptocurrencies and a You Only Live Once mindset. Unsurprisingly, expectations
moderate as investors get older. Only 23% of the sandwich generation of 45 to 54-year-
olds are very confident about achieving their retirement goals as the pressures of college
education for their children, aging parents, and a shrinking window to save for retirement
weigh on them. Financial stress is also particularly pronounced for this segment, having
experienced the elimination of defined benefit plans during the 1990s before they had an
opportunity to become fully vested—leaving them solely responsible for their retirement
security during economically uncertain times. Confidence in achieving retirement goals
rises again as investors enter their late 50s and 60s to match that of the younger cohorts,
with many of them having developed retirement strategies. However, 18% of 60 to
64-year-olds are still not very confident of achieving their retirement goals.
Exhibit 2: Investor Confidence in Achieving Their Retirement Goals
Confidence to achieve retirement goals
How confident are you that you will be able to reach your retirement goals?
60 (%) Very confident (9 or 10 out of 10)
50 52%
51% 41%
43 46% OVERALL CONFIDENCE
44%
40 42%
40% 40%
30
28%
20 23%
11%
10
0
Less than 35 to 44 45 to 54 55 to 59 60 to 64 65 to 69 70 and Female Male User Non-user
35 above
AGE GENDER CRYPTO USAGE
Source: MMI-Aon 2022 Investor Expectations Survey
2022 Advisory Solutions: Expectations and Experiences—PART 1: Emerging Retirement Planning Gaps in a Post-Pandemic World 5Since our research was conducted before the majority of the significant Q1 and Q2
2022 market declines and the publication of Q2 account statements, these sentiments
are likely set to erode as the year progresses. Advisors will need to have very different
conversations with each generational segment to understand their retirement goals and
concerns, developing robust and practical financial plans to help their clients close goal
vs. confidence gaps.
Overall, investors expressed a generally high level of satisfaction with their financial
planning experience (60% of investors very satisfied), with women being even more
satisfied than men (65% of women very satisfied vs. 57% of men). However, the 45
to 54-year-olds reported the lowest level of satisfaction at 46%—a sentiment that
correlates with their general financial anxiety—followed closely by the 35 to 44-year-
olds at 52%. These two age groups also rated their advisors lower on developing an
understanding of their personal goals and values as part of the financial planning
process. Similarly, only 45% of the under 35-year-olds felt that their advisors
demonstrated a good understanding of their full financial holdings vs. 57% for all
investors, likely driven in part by their crypto holdings that they may not have disclosed
to their advisor.
Successful financial plans begin with a thorough understanding of the investor’s life
and financial circumstances. Given the large differences in their clients’ aspirations,
expectations, and investment strategies, advisors will also need to take the time to
completely explore these circumstances before moving to analysis and recommendations.
If the advisor is making the plan very superficial and
simply giving you a number instead of really trying to
understand your goals, your purpose, and your concerns,
that advisor is not giving you confidence the plan is
really personalized for you.”
—Scott Thoma, Principal at Edward Jones
2022 Advisory Solutions: Expectations and Experiences—PART 1: Emerging Retirement Planning Gaps in a Post-Pandemic World 6STRENGTHENING THE ROLE OF THE ADVISOR
To prepare their clients for retirement, one way for advisors to be more effective at allaying
client concerns is by clarifying income and drawdown strategies. Our survey found that
26% of investors had not discussed long-term return expectations and withdrawal rates
with their advisor in the last 12 months, especially women investors (31%). In addition,
although only 20% of advisors expect returns on investment of 10% or more per annum,
investors are generally very optimistic in contrast, with 59% of investors expecting returns
of 10% or more, and 40% expecting more than 25% per annum (Exhibit 3).
Exhibit 3: Investor Long-Term Return Expectations
Long-term annual return expectations on investments
What are your long-term annual return expectations on your investments
to help you achieve your retirement goals?
+19338H 40
Investors: Overall
8%
Less than 5%
5%–9%
40% 33%
10%–24%
25% +
19%
Source: MMI-Aon 2022 Investor Expectations Survey
As post-pandemic uncertainties are set to persist in the near future, advisors must also
discuss the impact of emerging risks on investors’ life goals and formulate appropriate
solutions. Currently, longevity risk is the lowest-ranked retirement income concern (22%),
with inflation (33%) and market volatility (28%) being the highest, a refection of today’s
market environment. Advisors need to be proactive in offering advice and solutions to
help their clients navigate these very real challenges.
Longevity risk would be my number one worry, so clients are
less concerned about it than they should be—and advisors
should raise awareness of this long-term challenge.”
—Rob Pettman, EVP of Wealth Management Solutions at LPL Financial
2022 Advisory Solutions: Expectations and Experiences—PART 1: Emerging Retirement Planning Gaps in a Post-Pandemic World 7In addition, there is a gap between investors’ interest in guaranteed income and the
solutions offered by advisors. Younger investors are more interested in guaranteed
income solutions than their older peers, with 39%
being very willing to give up returns for certainty as
compared to 18% of their older counterparts. When it comes to annuities,
financial professionals often
On the other hand, 32% of advisors feel that annuities
seek older clients with more
are too expensive to be a good source of retirement
investable assets. However,
income compared to fixed-income and dividend
younger investors may be open
portfolios. This demonstrates the need for the industry
to annuity solutions that can
to do more to design and market guaranteed income
deliver guaranteed income that
solutions that are easy to understand, address current
they cannot outlive as well.”
market anxieties, and demonstrate strong value.
—Corey Walther, President of
The wealth management industry has made Allianz Life Financial Services
tremendous progress in improving the quality of
the financial advice delivered to investors, as evidenced by the generally high levels of
investor satisfaction with their planning experience. However, important gaps still need
to be closed and, as the market environment and investor expectations evolve, wealth
managers must be proactive in addressing the new gaps that develop.
KEY TAKEAWAYS
+ As both investors and advisors seek early retirement, wealth management firms
must respond by providing the best advice to their clients while also managing their
impending talent shortage.
+ There is a gap between investors’ retirement goals and their confidence in achieving
them that advisors should strive to close, particularly for their Gen X clients.
+ Younger investors are more confident but less realistic than more experienced investors
about the long-term returns they rely on to fund their ambitious retirement goals.
+ Most investors have a financial plan in place, but the plans are not doing enough to
increase investor confidence.
+ Although satisfaction with financial planning is generally high, particularly among
women, the younger segment generally feel that their advisors do not understand
their personal goals well—even though they are often seeking to retire much earlier
than their parents ever thought possible.
+ There is a market gap between younger investors’ interest in guaranteed income and
the solutions offered by advisors.
2022 Advisory Solutions: Expectations and Experiences—PART 1: Emerging Retirement Planning Gaps in a Post-Pandemic World 8ACTION POINTS FOR WEALTH MANAGEMENT
FIRMS AND ADVISORS
+ Advisors should pay particular attention to helping clients aged 45 to 54 with
retirement planning since they have the greatest anxiety about meeting their
retirement goals.
+ Younger clients often need more financial planning support, especially since
they may be unaware that their retirement aspirations are based on unrealistic
return expectations.
+ Advisors need to do more to understand their clients’ personal goals, worries, and
complete financial circumstances, particularly for the younger segment.
+ Firms and advisors should be proactive in addressing client concerns about market
volatility and inflation by orienting them to a financial plan that achieves their short-
and long-term goals, rather than short-term market and portfolio performance.
+ Advisors can provide additional value by educating clients about realistic long-term
return expectations and help allay their concerns by clarifying retirement income and
withdrawal strategies.
+ Advisors should also address longevity risk and offer specific advice and solutions to
navigate this challenge.
QUESTIONS?
Contact MMI by email at info@mminst.org or call us
at (646)-868-8500.
OUR RESEARCH
This article is part of a three-part series—based on proprietary research by the Money Management
Institute and Aon—that explores both investor and advisor views of the value of investment advice
and how it is delivered. The complete series will explore the gaps that have emerged between client
expectations and advisor and firm delivery in the following areas: Emerging Retirement Planning Gaps
in a Post-Pandemic World, the Investor and Advisor Digital Experience, and Risks and Opportunities
for Wealth Managers in Cryptocurrencies and Cybersecurity.
2022 Advisory Solutions: Expectations and Experiences—PART 1: Emerging Retirement Planning Gaps in a Post-Pandemic World 9About the Money Management Institute (MMI) Established in 1997, the Money Management Institute (MMI) is the industry association representing financial services firms that provide financial advice and investment advisory solutions to investors. Driven by our promise of increasing connections, knowledge, and growth for our members, MMI is dedicated to fostering professional relationships, sharing experiences, and expanding the industry’s influence through advocacy and education. MMI offers premier professional development programs, specialized curriculums, and facilitates peer-to- peer connections through our communities and conferences. As part of MMI’s longstanding commitment to diversity and inclusion, the Gateway Foundation provides clear pathways to entry and career advancement in the financial services industry for historically excluded and underrepresented groups. MMI member firms include wealth manager, asset manager and solutions provider firms of all sizes and professionals representing all functional areas. Follow MMI on LinkedIn. About AON The Aon Client Insight team specializes in understanding ultra/high net worth individuals and the financial institutions with which they interact. Using quantitative and qualitative research methodologies, our solutions cover Client Experience, Brand Tracking, Thought Leadership, and Strategic Advisory and Research, all designed to help drive business growth and performance. Together with our colleagues across Aon’s Human Capital Solutions Wealth Management practice, we use our market data and analytics to optimize the relationship between delivering value to your clients, the talent to deliver the client experience, and shareholder returns. Learn more at aon.com/performance-solutions/Client-Insight. Aon plc (NYSE: AON) exists to shape decisions for the better—to protect and enrich the lives of people around the world. Our colleagues provide our clients in over 120 countries with advice and solutions that give them the clarity and confidence to make better decisions to protect and grow their business. Follow Aon on Twitter and LinkedIn. Stay up-to-date by visiting the Aon Newsroom and sign up for News Alerts here. ©2021 Aon plc. All rights reserved. The information contained in this report and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2022 Advisory Solutions: Expectations and Experiences—PART 1: Emerging Retirement Planning Gaps in a Post-Pandemic World 10
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