A rapid fire presentation from Burt White, CIO of LPL Financial, at the company’s conference in Colorado Springs, Colorado on Friday was equal parts entertainment and information. “We’re not in an economic recession, but we are in a confidence recession,” White told the 401(k) advisors in attendance
He noted that business confidence is at 39 percent, consumer confidence is at 52 percent, but investor confidence is only at 26 percent after an eight year bull market.
“This perfectly illustrates the need for financial wellness,” he added. “Investor confidence is so low because they’re trying to do it themselves. It’s where you come in.”
Referencing the popular product of the 1970s, White argued that investing is like “Ronco, you set it and forget it. The less you do when investing the better. It’s unlike any other industry, and is therefore counter-intuitive.”
He then put numbers to investor behavior, noting that if a 401(k) participant begins saving $10,000 40 years before retirement with an expected 5 percent average return, they’ll have $1.2 million. If they begin 30 years out, they’ll have $600,020. In 20 years, it would return $300,010 and 10 years out would result in $150,000.
If the participant began saving 10 years before their retirement date, they would need a 50 percent return each year to get to the $1.2 million mark, and “good luck with that.”
“I realize 2008 was tough, but in 2000, 65 percent of Americans were in the stock market. In 2016, it’s only 52 percent. To put that in perspective, 49 percent play the lottery. That’s not good.”
“Progress is slow, but pain is immediate,” White quipped. “The focus is on the pain, which masks the progress.”
Rhetorically asking why investment costs are rising due to lower returns, he listed financial literacy/ investor emotion, the market environment, and Federal Reserve policy as reasons, emphasizing that the central bank’s actions “are making things worse.”
“Remember low rates affect both the interest we pay an interest we get. We can’t have it both ways.”
He then illustrated the value of a 401(k) retirement plan, explaining that an employer match is worth about 2.7 percent, the tax deferral benefit contributes 1.3 percent and other “immeasurables” kick in 1 percent, for a total of 5 percent.
“The market is predicted to return 4.8 each year on average over the next 10 years,” he concluded. “But participants can get 5 percent in a 401(k). This is the financial wellness story we need to tell.”
LPL Financial also debuted it’s Small Market Solution to 401(k) advisors. The new offering, which partners with Nationwide, Ascensus and Paychex, defines the small market as plans with (generally) under $10 million, a traditionally under-served—yet increasingly critical—market.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
