Lonely Crusader Touts Investments for Retirement
John L. Steffens is on a mission to change the way Americans think about their retirement finances and about investing. His frustration with that mission so far frequently shows through when he talks about the subject.
* Item: A 1990 study showed that, outside the equity in a home, the average financial assets of a surveyed group in the 45-to-54 age bracket totaled a paltry $2,300.
* Item: Only 40% of retirees today receive a private pension, and the median benefit paid is just $3,800 a year.
* Item: Despite evidence to the contrary, only 43% of 400 pre-retirees (age 45 to 64) surveyed by Merrill Lynch & Co. last year expressed concern about outliving their retirement nest egg.
Steffens is the 50-year-old head of Merrill Lynch’s individual-investor brokerage operations. He’s got an obvious ax to grind in crusading for higher savings and investment by all Americans: He wants Merrill to get a good chunk of that money, so its brokers can stay busy and turn a profit in the process.
Ax or no ax, Steffens is pretty convincing when he expresses shock and even anger at the way Americans view the prospects of retirement, and how they’ll fund those supposed golden years.
“There’s an issue that is staring us in the face, but we’re not addressing it--that is, we now may all live just as long in retirement as we worked,” Steffens said on a visit to Los Angeles last week.
Would your pension, home equity, savings and future savings cover you if indeed you lived for 30 or 40 years after you retired? The 1990 Merrill Lynch pre-retirees survey suggests that most people believe that they have little to worry about. In the survey, 53% disagreed with the statement: “I am concerned about outliving the money I’ve put away for retirement.” As noted, only 43% agreed.
Yet that same survey, which Merrill has conducted annually since 1988, revealed some striking contradictions in the 45-to-64 age group’s mentality about retirement finances, Steffens notes:
* A growing number of people in that group (62% now) believe that the individual has primary responsibility to provide his or her own retirement income.
* Yet 39% of pre-retirees in the survey expect Social Security--i.e., the government--to be their main source of income. Another 20% expect an employer pension plan to be the main source. Only 9% said either current individual retirement account savings or non-IRA savings would be the chief source.
* Worse, 19% of the 1990 survey respondents said they were allocating nothing at all toward retirement accounts.
Call it confusion or self-deception, but individuals’ actions just don’t jibe with their expectations--or with reality, Steffens says. In fact, he says, Social Security Administration figures show that personal savings are the largest single source (39%) of income for people who already are over the age of 65. Social Security provides just 20% and pensions 15%.
So if today’s 65-and-over crowd is forced to fund its retirement mostly from savings, why should the 45-to-64-year-old crowd believe that their income will come from somewhere else?
Steffens thinks that many middle-aged individuals have the wherewithal to get on a serious savings program. But they don’t want to make the effort. “The analogies with the medical business are terrific,” he says. “I was supposed to have a physical last year, but I found every reason why I couldn’t go for it.”
Many individuals may ask why they should believe that a brokerage like Merrill is truly interested in helping people build nest eggs, versus just trading their accounts to generate fees. Steffens understands the suspicions--which is why, he says, Merrill and many of its competitors stress “financial relationships” rather than traditional brokerage accounts.
The relationship idea--making a broker more of a financial planner than a salesman--isn’t new. And Steffens concedes that it isn’t a simple transition for Merrill. “I have two problems--convincing the sales force and convincing the customer,” he admits.
But he appears to be relentless in his pursuit of that ideal, convinced that there’s no future for the brokerage industry any other way.
“If I could change one thing about our business overnight, it would be that everyone on our sales force would do a financial plan for every one of our customers,” Steffens says.
For $250 to $500, depending on the extent of an individual’s net worth, Merrill offers computer programs that can map a “life” plan for an individual’s finances, setting goals and prescribing logical solutions for reaching them--and not necessarily stocks.
Do you have trouble seeing the value in paying that much for a financial plan? Steffens understands. When Merrill raised fees nationwide for some of its services last week, no doubt many investors grimaced. Steffens says Merrill has invested heavily in computer technology to help its broker-consultants synthesize investment choices and make them understandable to clients.
Technology isn’t cheap, Steffens says, but he maintains that you can’t sort the increasingly confusing array of investment options without it. “The financial world is going to get even more complex in the years ahead,” he warns. “Even though everyone wants it to get simpler, it’s not going to happen.”
Steffens knows that his battle to goad individuals into saving more is in the hands of his sales force. If they buy the “consultant” concept and work hard to develop clients’ enduring loyalty--not just sell a few products now and then--the game becomes win-win for both sides.
“When the customer gets the relationship that we’re talking about, he has no problem paying for it,” Steffens insists.
Briefly: Speaking of brokers, the average one earned $79,169 in 1990, the Securities Industry Assn. said in a recent report. That was a gain of less than 1% from 1989 average earnings of $78,711. The peak year for brokers: 1986, when average earnings were $97,100. . . .
Justin Mamis, one of Wall Street’s most respected analysts of technical stock market trends, will speak to the Technical Analysts of Southern California at 5 p.m. Wednesday at the Howard Johnson Hotel in Culver City (5990 Green Valley Circle). Mamis, who works for Gordon Capital in New York, is a seasoned pro at predicting market moves based on such signals as trading patterns and volume. The fee for the event is $10. . . .
A group of “socially conscious” investors has founded the Muir Investment Trust, a tax-exempt municipal bond mutual fund that will invest exclusively in bonds “that improve the quality of life in California.” Fund managers say they’ll focus on bonds issued for schools, mass transportation, environmental projects and other such areas. The fund, capitalized at $1 million to start, has a minimum investment requirement of $2,500 and a sales charge of 4.5%. For more information, call (800) 648-3448.
Trouble on the Retirement Front
In its third annual survey of people in the pre-retirement (45 to 64) age group last year, Merrill Lynch & Co. discovered a disturbing trend: More people agree that saving for retirement is their responsibility, but fewer people are actually putting money away for retirement.
Who has primary responsibility for providing retirement income? (percent of respondents picking:) Individual 1989: 54 1990: 62 Government 1989: 16 1990: 18 Employers 1989: 28 1990: 16 Don’t know 1989: 2 1990: 4
Average percentage of income allocated to retirement account: 1988: 14% 1989: 13%
Percentage of pre-retirees allocating nothing: 1988: 12% 1989: 19% Source: Merrill Lynch & Co.
