Digital Trends in Retirement: What They Mean for Investors and Plan Sponsors

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1 Digital Trends in Retirement: What They Mean for Investors and Plan Sponsors The digital revolution is fundamentally altering how individuals plan and manage their retirement investments. While some are empowered, others are overwhelmed. Retirement plan sponsors will need to understand and consider these changes to improve plan design and education efforts. The internet has afforded individuals unprecedented access to information and advice, but it remains uncertain that such connections lead to superior financial outcomes. The digital revolution that has changed how we consume information and communicate with others has also brought changes in how Americans invest for retirement. In order to better understand the current state of investors digital connection to their personal financial lives, PNC commissioned a wide-ranging survey of investors into how and why they connect, the tools and content to which they connect, and their perspective on how it shapes their planning. Our objective was to gain insights to help guide the efforts of plan sponsors and financial advisers in building relevant and effective content and advice platforms. Our Connected Society The evidence of our increasingly connected society is everywhere. Seventy-two percent of Americans now own a smartphone. 1 There are over 191 million active Facebook users in the United States. 2 Ninety-four percent of individuals under age 35 bank online, and 20% have never written a physical check. 3 There are many more chapters of this revolution to live than there have been written. Internet traffic is expected to increase threefold over the next five years, with smartphone traffic exceeding personal computer traffic by The digital revolution is constantly shaping the ways in which businesses and institutions interact with, and meet the demands of, their customers. This desire to be connected is spilling over into how investors wish to be engaged with all aspects of their personal financial lives. Not only has it changed the way Americans plan for and manage their retirement investments, it is also altering the landscape for retirement plan sponsors

2 American Investors are Plugged In Before taking a shower or even making coffee, the first thing that the overwhelming number (74%) of American investors do upon waking up is to connect to the internet, according to a recent study conducted by the Artemis Strategy Group for PNC. Checking their or social media accounts may be the most popular first activities, but the culture of connectedness extends to how they manage their financial lives, as well. There is no shortage of opportunities to connect. There are countless sources of financial news, a plethora of voices offering advice that can be called up at the click of a mouse, and customers have instant access to their accounts online. At first glance the ocean of information that is the internet might be overwhelming, but, in fact, our research shows that the majority of respondents (57%) believe that the amount and speed of information and communication available online and in digital form help them feel in touch with, and in control of, their lives. Only a small minority (9%) are overwhelmed by the overabundance of information and communication, while fully a third (34%) don t feel strongly either way. The research identified three distinct categories of investors: High Connectors feel very digitally connected to their personal financial information. They represent 45% of all survey respondents. High Connectors span across all age cohorts, but are more likely to be male (54%), employed full-time (66%), and have aggressive investment portfolios. They spend about 3.7 hours per week connected to their finances, substantially higher than the average of 2.7 hours per week for all respondents. Within the High Connectors group, we identified 17% of them as being Uber Connectors individuals who are exceptionally digitally connected and desire an even greater level of engagement. Eighty-six percent of these Uber Connectors say that there is no such thing as too much access to their financial information. They spend 5.2 hours per week digitally connected to their finances. Uber Connectors are more likely to be younger (49% are under age 44), employed full-time (83%), make financial decisions on their own (60%) and conservative investors. There were no significant differences from High Connectors with respect to gender, income or investable assets. Moderate Connectors describe themselves as somewhat digitally connected to their personal finances, and comprise 44% of survey respondents. While the clear majority is comfortable with their current level of digital engagement, 24% desire more digital connection. Moderate Connectors spend 2.2 hours each week connected digitally to their finances. Low Connectors say that they feel not very or not at all digitally connected to their finances. Low Connectors are predominantly female (61%) and spend 0.6 hours per week connected. They represent just 11% of the investors we surveyed. Amount of time spent weekly connecting to personal financial information digitally 0 hours a week = 5% < 1 hour a week = 36% 1 to 4 hours a week = 40% 5 to 9 hours a week = 10% 10 or more hours a week = 6% Don t Know = 2% High Connectors = 3.7 hours Moderate Connectors = 2.2 hours Low Connectors = 0.6 hours Uber Connectors = 5.2 hours 35 to 44 years = 3.0 hours 45 to 54 years = 2.8 hours 55 to 64 years = 2.5 hours 65+ years = 2.6 hours 2 Digital Trends in Retirement: What They Mean for Investors and Plan Sponsors

3 Factors Driving Digital Connection While most respondents said that they were comfortable with their level of connection, 20% of those surveyed wanted to be more connected for a variety of reasons, including: A belief that greater connection will help them make better financial decisions (44%) To gain more information about their finances (31%) A desire to assume greater control over their finances (31%) A belief that it would make them feel that they ve achieved their goals (23%) A belief that it will help them to worry less (23%) There is a minority (5%) that prefer less digital connection, and while they may be a small population, it is valuable to understand why. The individuals who indicated a desire for less connection are concerned about privacy (51%), information becoming a distraction (29%), a sense of already feeling overwhelmed (20%) and worries that information-seeking becomes too obsessive (20%). Humans are most comfortable when they enjoy a sense of control over their environment, and digital connection to their finances seems to provide a sense of control for the majority of those surveyed (58%). This feeling of control was even higher for High Connectors (75%). Perhaps because of this sense of control, when asked about how they felt the last time they were digitally connected to their investment and retirement accounts, the vast majority (70%) said satisfied. Only a small number described being anxious (12%), frustrated (9%) or confused (6%). The Connections Being Made So far our analysis has discussed the level of digital connection and the varying motivations for connecting, but equally important is understanding the types of digital information to which investors are connecting. Unsurprisingly, accessing liquid accounts (e.g., checking accounts) is the number one digital financial connection, with 77% of all respondents accessing such information on a daily or weekly basis. For High Connectors, this rate jumps to 86%. The next most popular connections made on a daily or weekly basis are financial news headlines (61% of all respondents; 69% for High Connectors) and stock market indices (50% of total population; 58% for High Connectors). Longer-term assets are checked less frequently, but 41% of individuals log into their 401(k) plan accounts with their current employer at least monthly, while 59% check their non-retirement investment accounts at least once per month. When accessing their retirement accounts, account balance reviews were the primary focus of an account inquiry (78%). Net investment return was the second most popular purpose, though lagging well behind at 11% of respondents, while investment mix and contribution posting confirmation both were the focus for just 4% of surveyed individuals. While an investment provider s website is generally well-visited 39% visit the site at least once a month about 7 in 10 investors never visit an investment provider s or an adviser s LinkedIn, Facebook or Twitter pages. 3 DDigital Trends in Retirement: What They Mean for Investors and Plan Sponsors

4 High Connectors are more likely to typically check all types of financial information % Check daily or weekly High Connectors Moderate Connectors Low Connectors Liquid accounts (e.g., checking, savings) 86% 73% 53% Financial news headlines 69% 58% 45% Stock market indices 58% 47% 27% Non-retirement investment accounts 46% 28% 14% Retirement accounts other than 401(k) (e.g., IRAs) 30% 15% 4% 401(k) account with current employer 23% 13% 5% A net worth aggregator to track overall financial picture 17% 9% 3% Dormant 401(k) with previous employers 11% 7% 4% Pension 9% 6% 2% All of the differences are statistically significantly different except between High and Moderate Connectors on checking pension The Tools Investors Use Digital connection to personal finances is not entirely an exercise in the passive gathering of information. It is also a proactive endeavor in which investors can use tools to gauge progress, reevaluate plans, and peer into possible future retirement outcomes. When asked about the tools they used in the past twelve months, the most commonly used tools were an asset allocation tool and a mobile app connected to a bank account, with 58% of respondents reporting use of each one in the last year. While the asset allocation tool was primarily accessed via a personal computer, the banking access was more evenly split between PC and mobile platforms. The usage rate of an asset allocation tool was much higher in the age groups (64%) and (62%), dropping significantly in the older age cohorts of (49%) and 65+ (41%). The usage rate was 69% for High Connectors. A retirement income calculator was next in popularity, with 48% of individuals (and 55% of High Connectors) reporting usage in the past year, principally via a PC platform. The usage of a retirement income calculator was similar for the age groups (45%) and (44%), but that number rose with retirement closing in 51% of those between the ages of reported using a retirement income calculator and then dropped for individuals age 65+ (25%). Social Security calculators and mobile apps for investments also had a relatively high usage rate, as 37% of respondents reported using these tools. As one might expect, the highest usage rate for a Social Security tool was the pre-retirement age group of (52%), with little interest from those years away from receiving Social Security age (29%) (29%) and those already receiving benefits age 65+ (27%). Usage of a mobile app for investments tilted younger, as the age groups (30%) and (29%) reported higher use than the older age groups of (24%) and age 65+ (19%). For High Connectors, that rate jumped to 50%. 4 Digital Trends in Retirement: What They Mean for Investors and Plan Sponsors

5 More than one in five (22%) used a retirement early withdrawal calculator in the past year, possibly indicating imminent financial difficulties or contingency planning in expectation of such challenges. More than eight in ten had not used an investment fee calculator, insurance needs calculator or debt reduction tool in the last twelve months. However, for the few that did, the age group had the highest use for all three calculators investment fee (22%), insurance needs (22%) and debt reduction (23%). When it comes to mobile applications to connect with their accounts, 39% of those surveyed reported using one, while 61% did not. This varied substantially by connection profile, with 50% of High Connectors, 35% of Moderate Connectors and 12% of Low Connectors using one. Emerging Opportunities for Providers and Advisers Too much information can overwhelm, and even obscure the lessons it offers. The preceding discussion provides insights into the demographics of the three primary digital adoption profiles that our research uncovered, the tools they use, the information they seek out, and the ways in which the technology can improve the investment experience. There are a number of valuable conclusions that can help identify opportunities and strategies for plan sponsors and financial advisers to consider as they seek to meet the evolving needs and demands of an increasingly connected investor. î Insight 1. Many investors, and especially High Connectors, are looking for even more tools to stay connected. If an individual believes that access to information provides them with a greater sense of control, it stands to reason that many would want even more access to information. However, quantity should not be confused with quality and relevance. Among the most desired connections were: Very/Somewhat interested in tools or content regarding their personal finances Periodic notifications of changes in your portfolio (either online or mobile) Recommendations or alerts when changes occur or opportunities arise Timely recommendations when opportunities appear with your portfolio Greater capabilities on mobile devices beyond balances and check deposit Ability to interact with a financial adviser via text Ability to interact with a financial adviser through a mobile app Ability to buy and sell investments with a mobile device Ability to communicate with a financial adviser via Skype Total 24% High Connectors 27% Total 72% High Connectors 78% Total 71% High Connectors 77% Total 69% High Connectors 75% Total 55% High Connectors 65% Total 48% High Connectors 53% Total 41% High Connectors 47% Total 40% High Connectors 49% All of the differences are statistically significant except for using Skype 5 Digital Trends in Retirement: What They Mean for Investors and Plan Sponsors

6 Tip for Plan Sponsors: Consider whether your retirement plan service providers are meeting the needs and desires of your employees who fit these profiles. î Insight 2. Personal Connection Still Matters Even though investors may be digitally connected, the personal touch and customized advice from a provider is still highly valued. Six of ten investors would consider switching providers if their adviser was replaced by a robo-adviser, or they were moved to a call center. Our findings indicate that perhaps one of the best ways a financial adviser can prove the value of human connection is by helping investors cope with stock market volatility. Investors appear to have mixed feelings about market volatility, with many believing that it is a normal part of investing. However, just as many investors say volatility represents an opportunity to make money as it is a source of concern that they could lose money. Total Age (A) Age (B) Age (C) Age 65+ (D) I am not concerned about volatility because I am in the market for the long haul Market volatility is simply a normal part of investing so I don t pay much attention to it I see market volatility as an opportunity to make money I am greatly concerned about market volatility because I could lose money 64% 58% 68% AC 59% 76% AC 57% 54% 61% 53% 58% 45% 45% 47% 44% 40% 42% 45% 39% 46% D 35% Statistically significant differences indicated by column heading letter and bold font. For the surveyed individuals who have a financial adviser, 72% spoke to their adviser during recent market downturns 50% reported their adviser contacted them, while 22% initiated contact. Twenty-eight percent did not have any contact with their adviser. When asked, 66% of respondents indicated that they wanted their adviser to reach out to them during market declines. When advisers and investors connected, these discussions ranged from general conversations about market volatility to simple reassurance. What FA did when they connected... Decisions resulting from discussion: Discuss, in general, market volatility 63% Not make any changes to your portfolio 50% Reassured them that their investments were safe 51% Make minor changes to your portfolio 38% Suggested changes to their portfolios 28% Make significant changes to your portfolio 9% Asked them to be patient for a few more weeks 18% Move some of your money to cash 7% Other 2% Withdraw your funds 1% 6 Digital Trends in Retirement: What They Mean for Investors and Plan Sponsors

7 Tip for Plan Sponsors: When evaluating retirement service plan providers, consider how they communicate with employees during times of market volatility. î Insight 3. Information is Not Wisdom Information can be considered the foundation of better decisions, but it does not necessarily provide the wisdom to make them. Fifty percent of respondents make changes to their investment accounts at least once per year, yet some think they don t make enough changes (18%), or are not sure what the right number of changes is (23%). About one in ten said that they regretted a retirement decision they made in the last year. The top reasons for this regret were: The purchase of a specific stock(s) (38%) A change in their investment portfolio (25%) The sale of a specific stock(s) (21%) Selling investments and moving into cash (19%). The prime culprit in making investment decisions more confusing was news sources, which was cited by 39% of respondents. The most helpful source was their financial adviser (35%), with the investment provider s website being the second-most helpful source (31%). What is clear is that plan sponsors play a key role in helping individual investors from engaging in counterproductive investment behaviors, a role that they should find ways to expand and enhance. Helpfulness of information sources My financial adviser My investment provider s website News (television, radio newspapers or online news Information I hear from friends and family Social media 25% 41% 35% 17% 52% 31% 39% 41% 20% 25% 62% 13% 20% 72% 8% Source made decision more confusing Neither Source was helpful Tip for Plan Sponsors: A key area to consider when evaluating retirement plan service providers is the education that they provide to employees. Is there an annual education plan? Does it need to be expanded? It is also advisable to conduct an annual survey of employees to determine if there may be additional or different opportunities for employee education. 7 Digital Trends in Retirement: What They Mean for Investors and Plan Sponsors

8 î Insight 4. Opportunity to Help the Overwhelmed Of those that feel overwhelmed, they are predominantly female (68%), educated (college degree or higher, 40%), high income ($119,200 mean) and cut across all Connector profiles. Thirty-three percent of the overwhelmed group are High Connectors, 55% are Moderate Connectors and 13% are Low Connectors. It may be that, for this overwhelmed segment, information needs to be more carefully curated to facilitate education and understanding, rather than an information dump. The means and methods of investor education delivery for this segment might be re-evaluated to accommodate a longer time horizon for making decisions and expand the availability of in-person advice. Tip for Plan Sponsors: When designing your employee education program, consider your workforce demographics and how your employees prefer to receive financial information and news. Your retirement plan service providers should consider the demographics and the communication preferences of your workforce to help meet their education needs. î Insight 5. Move to Where the Puck Will Be The reader may have noted that this paper s discussion frequently underscored where the High Connectors registered in our survey results. This was done because, we believe, as Baby Boomers retire, and the technologically savvy Millennial generation (and Generation Z, the post Millennial generation) come to dominate the workforce, today s High Connectors point to the future standard of content, tools and advice platforms to which plan sponsors will need to rise in the years ahead. Already, more than one-in-three workers are Millennials, having surpassed Baby Boomers to become the largest share of the U.S. labor force. 5 As Millennials assume more positions of organizational authority, including selecting vendors for their company retirement plans, they will likely be High Connectors who expect plan providers and advisers to offer guidance, content and the tools that matter most to them. Tip for Plan Sponsors: If your workforce includes a significant number of High Connectors, consider whether your retirement plan service providers can meet their expectations. Digital Connections are Shifting Retirement Expectations PNC Retirement Solutions is committed to gaining a deeper understanding of individuals perspectives and behaviors on a range of financial and lifestyle issues, and sharing those insights with plan sponsors who occupy the front lines in the effort to help Americans achieve a financially secure retirement. If you have further questions about Digital Trends in Retirement: What they mean for Investors and Plan Sponsors please contact your PNC Retirement Solutions Representative or contact us directly: Call (855) ; vestedinterest@pnc.com; or Visit 8 Digital Trends in Retirement: What They Mean for Investors and Plan Sponsors

9 Digital Trends in Retirement: What They Mean for Investors and Plan Sponsors Survey Methodology The Perspectives of Retirement 2016 is the product of a PNC-commissioned survey of 1,002 participants conducted over the period May 20, 2016, to June 1, 2016 by Artemis Strategy Group, an independent research group. This survey focused on Successful Savers, who had a minimum of $100,000 in total investable assets for individuals age 45 to 75, or $50,000 for individuals age 35 to 44. All respondents were the primary or co-equal decision-makers in making the long-term financial investment decisions for their household. Approximately 20% of participants are retired The material presented in this article is of a general nature and does not constitute the provision by PNC of investment, legal, tax or accounting advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed herein are subject to change without notice. The information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy. You should seek the advice of an investment professional to tailor a financial plan to your particular needs. For more information, please contact PNC at The PNC Financial Services Group, Inc. ( PNC ) uses the marketing names PNC Retirement Solutions SM and Vested Interest for non-discretionary defined contribution plan services and investment options provided through its subsidiary, by PNC Bank, National Association ( PNC Bank ), which is a Member FDIC. PNC Bank also provides custody, escrow and directed trustee services and FDIC-insured banking products and services and lending of funds. PNC does not provide legal, tax or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC does not provide services in any jurisdiction in which it is not authorized to conduct business. PNC does not provide investment advice to PNC Retirement Solutions and Vested Interest plan sponsors or participants. Vested Interest and PNC Retirement Solutions are registered service marks of The PNC Financial Services Group, Inc. INVESTMENTS: NOT FDIC INSURED. NO BANK GUARANTEE. MAY LOSE VALUE. CRG_PNC