Introduction
This paper explores the evolving landscape of workplace and retirement planning, highlighting the need for a more client-centric approach that incorporates personalization, innovative investment options and integrated advice to better meet individuals’ diverse needs and goals. The retirement industry is at a critical juncture, facing challenges from changing demographics, technological innovation and increasing competition. In particular, innovations in retail banking and wealth management are outpacing the industry’s current standardized and product-centric approach.
The Coming Pivot
The challenges facing the United States retirement system are intensifying. Demographic shifts and new technologies are combining with growing needs and expectations to expose the system’s vulnerabilities, while the limitations of its infrastructure and misaligned incentives are stymieing innovation. But with new models of employment emerging, technology changing how individuals of all ages earn, save and invest their money, and the growth of holistic data-driven service models, the stage is set for disruption.
Goals for the Future of Workplace and Retirement Planning
Source: Franklin Templeton Industry Advisory Services. For illustrative purposes only.
In this paper we share the insights and findings from open-ended interviews with over 50 industry leaders. We examine the combination of shifts and forces driving change independently of the industry’s appetite or readiness for it, and present the trajectory of the retirement industry in the context of the wider trends reshaping the future of investing and society as a whole. We explore consequences of these dynamics and show how the extent and pace of change in the retirement planning industry and the workplace it is centred on is likely to be very different from in the past.
New pathways to address the industry’s challenges, individuals’ concerns, and for industry participants to remain competitive in this future are emerging, but following them will require new ways of thinking, new ways of organizing around and servicing client needs, and a new model of competition. We lay out the different stages and requirements for building towards this future and present a broader vision of navigating the changing future of retirement planning and provision, the changing role of benefits and advice, and the intersection between personalization, wealth and retirement.
Methodology
For Franklin Templeton’s Workplace Advisory Services Survey, Franklin Templeton Industry Advisory Services group conducted off-the-record, unscripted interviews with the leaders of 52 firms who are responsible for approximately US$18 trillion in retirement assets in the United States.
Participants were encouraged to share their views on interesting developments and expectations for the future of the retirement planning industry. Discussions were wide-ranging and candid, and select anonymized quotes from interviewees are included throughout this report.
All input from individuals and the firms they represent is anonymous. We do not delve into any organization’s individual plans, nor do we expose any firm’s direct strategy. Instead, we look to synthesize the comments we have heard and distill spots where there is either alignment in multiple participants’ views or there are inklings of a new and potentially disruptive path that might upend conventional thinking. Interviewees were drawn from a wide range of industry roles, including recordkeepers, plan sponsors, insurance firms, asset managers and advisors, as well as a variety of consultants focused on legal, trade and technology support. In addition, we interviewed a number of fintech founders and leaders focused on retirement product, engagement and experience.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal. Large-capitalization companies may fall out of favor with investors based on market and economic conditions.
Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.
Investment strategies which incorporate the identification of thematic investment opportunities, and their performance, may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. Focusing investments in the health care, information technology (IT) and/or technology-related industries carries much greater risks of adverse developments and price movements in such industries than a strategy that invests in a wider variety of industries.
Blockchain and cryptocurrency investments are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk; an investor can lose the entire amount of their investment. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.
Digital assets are subject to risks relating to immature and rapidly developing technology, security vulnerabilities of this technology (such as theft, loss, or destruction of cryptographic keys), conflicting intellectual property claims, credit risk of digital asset exchanges, regulatory uncertainty, high volatility in their value/price, unclear acceptance by users and global marketplaces, and manipulation or fraud. Portfolio managers, service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio managers and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.
ETFs trade like stocks, fluctuate in market value and may trade above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. ETF shares may be bought or sold throughout the day at their market price on the exchange on which they are listed. However, there can be no guarantee that an active trading market for ETF shares will be developed or maintained or that their listing will continue or remain unchanged. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.
Investments in many alternative investment strategies are complex and speculative, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative strategies may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment. Diversification does not guarantee a profit or protect against a loss.
Diversification does not guarantee a profit or protect against a loss.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.