Plugging Up the Leaks in Women's Retirement Planning
In our last post, we covered the female elephant in the room: Given women's longer expected lifespans, it's vital for women to participate in the household's financial and estate planning interests. A newly published White House report, "The Effects of Conflicted Investment Advice on Retirement Savings," sets the stage for another important discussion about your family's retirement planning and how the same longevity issues matter here as well.
First, Let's Talk About Fiduciary Advice
Let's talk about that White House report and its connection to women's retirement planning. This may seem like a digression, but bear with us. We'll connect the dots before we're through.
Citing evidence from more than 50 independent resources, including dozens of peer-reviewed academic studies, the report estimated that retirement investors may be losing an aggregate of $8–$17 billion each year from conflicted advice. What do they mean by that? "Conflicted payments are payments to the adviser that depend on actions taken by the advisee," explains the report, and lists an abundance of such practices, including revenue-sharing, 12b-1 sales fees, front-end and back-end sales loads, commissions on products sold, and additional incentives for recommending one product over another.
In other words, much of the most common retirement planning advice available to families comes from the brokerage community, whose representatives can and do are paid more or less depending on which products you, the unwary "advisee," agree to invest in. We say "unwary," because a broker, who is subject to a less-stringent advisory standard, is NOT required to disclose incentive-based conflicts of interest when making his or her recommendations to you.
You may find this difficult to believe. If so, you aren't alone. Take this illustration of a couple in their 70s, the Toffels, who were featured in a New York Times exposé, "Before the Advice, Check Out the Adviser." The article describes how the Toffels were sold a variable annuity for their $650,000 life savings, with annual costs exceeding 4 percent, plus a 7 percent surrender charge that effectively trapped the Toffels into the overpriced holding. Consider this in the context of a typical, no-frills index fund costing less than 0.25 percent, with no surrender charge. The article points out: "Like many consumers, [the Toffels] say they didn't realize that their broker wasn't required to follow the most stringent requirement for financial professionals, known as the fiduciary standard."
That is why it behooves families in general and women in particular to turn to a fiduciary investment advisor whose legal duty is to always advise strictly according to the client's highest financial interests, ahead of any such conflicts of interest – and to disclose any and all conflicts of interest that may exist in the firm's Form ADV.
Why Women in Particular?
Nobody wants or can afford to lose unnecessary chunks of their retirement savings to excessive, often opaque expenses. But for women, the concern is even greater. An abundance of well-publicized evidence informs us that women face a tougher uphill battle in accumulating and preserving their retirement wealth to begin with. Women don't tend to be in the work force for as long, and their earning power tends to be lower. On top of that, as we've already touched on, women tend to live longer than men. To point to one resource out of many substantiating these data points, the AARP Public Policy Institute offers this fact sheet: An Uphill Climb: Women Face Greater Obstacles to Retirement Security.
Bottom line, for estate planning and retirement planning alike, it's critical to ensure that a woman and her family is prepared for the likelihood that she will be the one who is in it for the longer haul. That includes ensuring that during her earning years and into retirement she is not paying more than is necessary for her investment experience. Combine the general challenges inherent to retirement investing with a woman's additional career and lifetime hurdles, and we've now connected the dots back to the advisability of seeking a fiduciary advisor to help her keep a tight and informed rein on her retirement wealth.