Banks are taking the lead but companies like Fidelity Investments, Raymond James, and Edward Jones plan to jump aboard

February 22, 2010 — 6:18 AM UTC by Sara Hansard


A push to get lower income people to save through automatic savings programs could also benefit investment advisers as financial organizations push for more automatic savings features in mutual funds, 401ks and annuities.

In the coming year the Financial Services Roundtable, the Consumer Federation of America and the Employee Benefit Research Institute will be encouraging banks to adopt “best practices” for automatic savings programs, including free automatic transfers from checking to savings accounts, lower account minimums for automatic savers, and financial incentives for customers who sign up for automatic savings programs.

The program is primarily aimed at getting low- and moderate-income households to set up savings accounts. Only 58% of households with incomes below about $54,000 currently have savings accounts.

But the groups also will be pushing financial advisory firms, mutual funds and other financial service firms to enhance and promote automatic programs for more long-term investments.

One step further

“We’re going to go one step further,” said Steve Bartlett, president of the Roundtable, who spoke at a press conference in Washington Thursday at which the automatic savings program was announced. “We’re going to introduce these same concepts to companies that are not banks in the area of mutual funds and 529’s and 401k’s and annuities and life insurance, and find ways to use these same automatic savings practices to encourage automatic savings in other savings and investment vehicles,” said the former Dallas mayor and Congressman from Texas.

The Roundtable’s 100 members account for about 70% of consumer financing in the U.S. The Roundtable plans to work with its retail bank members to get them to adopt the best practices that have been identified to encourage savings, and it will work with member companies such as Fidelity Investments, Raymond James Financial Inc. and Edward Jones to develop similar features for automatic transfers in their accounts, Bartlett said.


Most financial companies have automatic transfer systems, but they don’t promote them or offer incentives to people to use them, Bartlett said. “If we can move the needle and get our hundred companies into the automatic transfer [system], it will change the economy of this country in a profound way in a few short years.”

“We’ve long advocated auto features in 401k plans,” said Fidelity spokeswoman Jenny Engle, contacted separately. Fidelity offers customers the ability to automatically contribute to 401ks from workplace savings plans and in IRAs, “in any way people want to contribute to retirement savings accounts,” she said.

The economic meltdown that started in 2007 has “fundamentally changed the landscape and the outlook for people in savings and retirement,” said Ron O’Hanley, president and chief executive officer of BNY Mellon Asset Management, who spoke at the press conference.

37% savings shortfall

With 4 million Baby Boomers looking to retire every year starting in 2011, most do not have enough to retire, nor do younger people coming behind them, he said. The typical American household needs $52,000 a year to sustain itself in retirement. The average American family is 37% away from the goal of having enough savings to support that, O’Hanley said.

“Maybe in the past the kinds of products that have been offered to consumers either haven’t been understood or just haven’t worked as well,” O’Hanley said. One part of the solution is making a range of automatic products available to consumers that are easy to use and have incentives, he said.

But in addition to offering simplified products, promotion is key, O’Hanley said. “Once you set up something you tend not to reverse yourself on it.” He pointed to research showing that 85% of people who automatically enroll in 401k plans keep their deductions going, regardless of income.

Banks will benefit from promoting automatic savings programs to all customers, said Stephen Brobeck, executive director of the Consumer Federation of America. There is a chance for synergy in marketing different types of products with the common theme of automatic savings. “There will be people who are 45 and are prepared to save $1,000 a month,” he said.

Almost all Americans

Indeed, “Almost all Americans…at every stage of their life, in every region, and at every income level, need to save more,” said Stephen Potter, president of Northern Trust Global Investments, which deals with about half of the top 200 pension funds in the U.S., managing more than $32 billion in defined contribution assets.

The groups’ plans are another step towards more automatic savings plans. The Pension Protection Act of 2006 allowed employers to automatically enroll employees in 401k plans unless the worker chose not to be, and President Obama has included in his fiscal 2011 budget a proposal requiring small businesses to set up “automatic IRAs.” Under that proposal, approximately 75 million Americans who do not have access to workplace retirement plans would be automatically enrolled in Individual Retirement Accounts unless they specifically chose not to be.

Brooke’s Note: It sounds like common sense is holding sway in Washington on this issue. Is there a downside to creating a myriad of ways for people to save more effectively?

Mentioned in this article:

Raymond James Financial Inc.
Asset Custodian
Top Executive: Bill Van Law

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