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Investment risk tolerance discussions are done to understand how much risk investors should have in their portfolios so that allocations can be properly calibrated. The challenge is that reaction to risk is more complicated than many realize, and thought processes have significant consequences that are often not considered. There are several reasons why discussions of risk are often more complicated than they appear.
by Mathew Greenwald
Greenwald Research, working with actuary Chuck Preti of Life and Annuity Solutions, has identified a new, and we think, highly attractive life insurance concept that, to our knowledge, is not currently available. This new concept not only does a better job of meeting many people’s needs, it can also have significant market appeal. Further, besides providing a crucial death protection benefit in a highly efficient way, this concept can also provide an important component to retirement planning and financial security in retirement.
We surveyed 504 people ages 20-50 who have a spouse and/or child and personal income of at least $40,000 per year, starting by comparing the appeal of traditional term insurance with income term insurance. Traditional term insurance is very common in the marketplace, while income term insurance, which can be defined to provide income until a specified and pre-definable date, is available from only a few companies. (It is not the new concept we will soon describe.) We asked respondents how appealing they found an income term policy that paid an immediate death benefit of $25,000 and then $3,000 a month to the beneficiary for a set period, depending on the age of the insured. We also asked how appealing they found a traditional term insurance policy that paid a lump sum death benefit of $250,000. The cost of the income term and traditional term policies, according to an analysis by the actuarial firm Life and Annuity Solutions, is similar.
Our research showed that more people found income term to be appealing than found traditional term insurance. When compared directly, 37% preferred Income Term Life and 24% preferred Traditional Term Life. This survey demonstrated to us the appeal of life insurance which made monthly payments.
Then our survey asked what type of income term the respondents preferred:
Even though the description of the lifetime payment option specified that no payments would be made if the beneficiary died before the insured, there was a strong preference for the policy that made monthly payments for the life of the beneficiary. Indeed, 46% preferred that policy and only 29% preferred the policy that would pay monthly income until the insured would have reached age 70. I will call a policy which makes a small immediate death benefit and then makes payments for the life of the beneficiary Lifetime Income Life Insurance.
It is clear why lifetime income is preferable: it provides the most financial security to the beneficiary and is the most financially and psychologically satisfying. Furthermore, in many cases, this coverage can be less costly than a policy that just pays benefits for a period of time. I believe this type of policy, once offered, can be highly marketable. This is the new concept we consider so promising.
The advantages of Lifetime Income Life Insurance over traditional life insurance are:
Lifetime Income Life Insurance can be used as a more effective pension maximization product. A person who is retiring with a pension benefit must choose payments just either single life benefits or joint and survivor benefits. The advantage of joint and survivor payments is clear, but that often requires a substantial drop in the amount of lifetime income the pension will provide. An actuarial analysis reveals that it would often be advantageous for a retiring worker, especially one in reasonable health, to take the single life coverage and buy lifetime income life insurance that would continue payments to the spouse at whatever level the pensioner decided was appropriate if the pensioner died first. While it is unclear how much traditional life insurance a person seeking pension maximization should get, with Lifetime Income Life Insurance, they can decide exactly how much income the survivor would need.
Due to breakthroughs in life insurance underwriting, there are ways of making Lifetime Income Life Insurance significantly better in many situations. Underwriting has become, in many circumstances, very quick and inexpensive. This makes it feasible to underwrite both the insured and the beneficiary, which can permit, in a number of cases, providing more coverage for the same premium. This can make the coverage much better in situations in which the beneficiary is older and/or has impaired health, (a scenario especially likely for men who tend to marry younger women.) This is especially true in circumstances in which the impaired person cannot work and is completely dependent upon the insured.
Consider the following situation: a 45-year-old woman who is working and supporting her 55-year-old husband who got sick and had to leave the workforce. Assuming the man is rated a “Table 8,” (an actuarial rating indicating a lower than average life expectancy) if she is in good health, she could get a Lifetime Income Life Insurance policy that paid her husband $46,027 a year for life for the cost of a traditional policy that paid a lump sum death benefit of just $100,000.[1] Which policy do you think would be better for a 55-year-old man: $100,000 or $46,027 a year for life?
If the woman is age 55 and the husband is age 65 and rated “Table 8,” the annual payout for life would be $82,214. There are many women who are married to men who are older and in poorer health than they are. The husband is often very dependent on the wife for needed income. Life insurance is essential. This policy provides it in a superior way.
Also, consider a young mother or father who just gave birth to a significantly impaired “special needs” child. The child will never be able to support himself or herself. The mother, for example, could have a life expectancy of 50 years. The child could have a life expectancy of 30 years. The child will need income for life if the parents die. But many special needs children would be unable to manage the money. A policy that provides Lifetime income life insurance is the perfect solution. It provides monthly income that would not have to be managed. Very importantly, it would provide lifetime income at a sufficient level for the child from day one at a much lower cost than traditional life insurance.
Use of Lifetime Income Life Insurance
We believe there are a number of potential applications of Lifetime Income Life Insurance. It is certainly superior, as indicated above, in many specific circumstances. It also may be effective in the direct marketing and voluntary markets. In the individual market, beyond the cases when it is clearly the superior choice, it will often, we believe, be effective, as the lead recommendation. However, we think it can also be helpful as a fall back recommendation if a prospect has trouble deciding how much coverage to get or balks at the cost of coverage.
Suggested Next Steps
Our research just covered the basic design of Lifetime Income Life Insurance. There is potential to make this solution even more appealing through features such as a death benefit for the beneficiary, return of premium, the guarantee of a certain level of payout, and transformation of the coverage to long term care insurance. Designing the most effective policy will require product development research. If you are interested in discussing product development efforts or want more information about the survey we conducted, contact us.
[1] Calculations made by the actuarial firm Life and Annuity Solutions.
Insights from Greenwald Research’s Rethinking Retirement Study
AnnMarie Pino
Before the pandemic, just 9% of workers primarily worked from home. By the time Greenwald Research’s Rethinking Retirement Study was fielded in early December, this share jumped to 32%. For those who faced this significant shift in work environments caused by the COVID-19 pandemic, there are many questions on what the impacts are—both short- and long-term.
53% of workers age 55–69 report that since the pandemic begun, their employer has allowed for flexible work arrangements, likely born out of necessity due to local guidelines and mandates. Employees say the pandemic has changed how their employer conducts day-to-day business, with those now working from home more likely to say this has been impacted to a great extent (43% vs. 33% not working from home).
Job Satisfaction
Despite these major changes brought about by the pandemic, more than three-quarters of workers are satisfied with their job. Those whose job shifted to working from home are no different, with 77% reporting they are satisfied. However, more of those now working at home saw an increase in job satisfaction since the pandemic’s onset—34% are now more satisfied with their jobs compared to the 22% of workers who are not now working remotely.
Even if Zoom fatigue is real (75% of remote workers say they have at least a few virtual meetings a week), it seems that the move away from the office has boosted job satisfaction for many.
Retirement Timing
One of the biggest questions from this study is how the pandemic is impacting what retirement looks like. For current employees, 42% say the pandemic has not changed when they plan to retire. However, 32% of those who shifted to remote work say they are now planning to retire later than originally planned (vs. 24% of those who did not switch to working from home).
In addition, the motivations around the decision to delay retirement are different depending on if employees started working at home only after the pandemic began. For instance, the financial impact of the pandemic is the top reason those who did not transition to working from home say they will continue to work longer (41% vs. 27% working remotely). While these employees are planning to work longer out of financial necessity, those who did start working from home attributed this ability to work remotely as the top reason to delay retirement (29% vs. 11% of those not working remotely post-pandemic).
Going Forward
Satisfaction with how employers have handled the pandemic is high, but it is equally important for employers to consider how they will proceed as the world moves beyond widespread stay-at-home orders. Continued flexibility is key to ensure that these employees continue to remain satisfied but also to accommodate those who may not have enjoyed the change in work environments. One solution will not fit all, so continuing to adapt and create arrangements to best suit individual employees’ needs can help drive job satisfaction, leading to higher productivity and lower employee turnover.
Click here to learn more about Greenwald Research’s Rethinking Retirement Study or to purchase the full study results.
If you work in the healthcare world, “social determinants of health” (SDoH) is something you’re starting to hear everywhere. While it has long been a focus in public health, the healthcare industry and employers have been slower to make it one of their foci. Since half of Americans receive healthcare through their employer, this is a problem.
It has been easier for plan sponsors to focus on employees as individual actors, rather than thinking broadly about how employees are functioning overall with regard to the SDoH in their communities: economic stability, education, health and healthcare, neighborhood and built environment, and social and larger community context. In fact, most wellness programming and associated tools (i.e. fitness watches, reimbursements for gym use, and financial wellness seminars) are completely focused on changing an individual’s behavior notwithstanding the external forces beyond the company walls. But it hasn’t been working. The sick are sicker and healthcare prices continue to rise in part because we are not individual actors and health and wellbeing are much bigger than what happens within the company walls. If employers want to continue being the conduit to healthcare for most Americans, they need to understand how programming works both on the individual and how it fits into the local fabric of the community.
Large employers are expected to spend an average of $3.6 million on wellness programming for employees in 2019[1]. This includes everything from gym membership subsidies, to in-house seminars, to Fitbits. Nevertheless, the CDC says that 6 in 10 adults have a chronic disease and 4 in 10 have two or more chronic diseases[2]. This is not limited to the unemployed or underemployed. Our research of consumers with health insurance shows that at least half are overweight or obese, a condition linked with many chronic diseases[3].
Clearly the investment in wellness isn’t solving the problem on its own. In our conversations with healthcare consumers, we know that wellness programming doesn’t work for everyone. This is because most wellness programming is implemented on a company-wide scale, without taking into account the nuances of the members and communities that it serves. While some of the challenges cross cultures and people, that doesn’t mean that there is a blanket solution. Gym memberships and financial wellness classes alone will not change behavior if the employees are worried about where their next meal will come from, if they are in physical danger, or if they simply don’t understand the point of changing behavior. Wellness programming is currently focused on the individual or the company, not the broader context in which those individuals live – their community. There is opportunity for employers and their health partners to look beyond their walls, into the communities to which their employees belong.
Employers first need to cultivate a trust and consciousness with employees and the communities so that they understand their unique challenges and resources. Only then can wellness programming leverage this knowledge to actually change behavior. To do so, companies can partner with community leaders who can educate them about the particular challenges of the community and who can educate and encourage community members to make changes for the better. Thinking locally requires a decentralization of health and wellness thinking, but it will be far more powerful and effective than a one-size-fits-all healthcare approach.
What are the root causes of poor health and health decision-making and what can be done?
Engagement of healthcare consumers requires us to scrap that one-size-fits-all approach of health initiatives today. It requires trust-building and engagement at the local level. Professor Raghuram Rajan, of The University of Chicago, calls the community “The Third Pillar,” and calls on us to practice “inspired localism,” where we engage with and energize communities to inspire real and lasting change. In this context, when community is engaged and energized, it will develop solutions to its healthcare problems.
Employers are often the biggest stakeholders in a community. They are dependent on the vitality and stability of the community in the same way that a community depends on them. Employers can take a good look at themselves and how well they are engaging with employees and their communities to empower them to take control of their healthcare and health expenses. To do so, they need an understanding of SDoH at each of their plants, offices, and other locations. Simply deploying libraries of information or wellness programming without understanding the root-level issues that might interfere with getting health and wellness mindshare is ineffective. For some companies, it might require a radical change of focus to recognize the value of potentially decentralizing some aspects of their benefits. Nevertheless, thinking this way will ensure that everyone will be better off.
Sources:
[1] National Business Group on Health/Fidelity
[2] CDC, https://www.cdc.gov/chronicdisease/resources/infographic/chronic-diseases.htm.
[3] Greenwald Research/EBRI, Consumer Engagement in Healthcare, Annual Survey. 2018 edition.
[4] Greenwald Research/EBRI, Consumer Engagement in Healthcare, Annual Survey. 2018 Edition.
Money management in retirement presents a complicated challenge. Over what can be a 20- to 30- year time horizon or more, most retirees need a significant return on their investments in order to deal with the corrosive long-term impact of inflation, pay for unexpected expenses, and maintain their feeling of financial security. This is difficult at any time, but especially hard to achieve in the current low interest rate environment. There is one added difficulty that many retirees face: an increased concern about investment risk.
This sensitivity is not unfounded. Retirees become subject to sequence of return risk and have to make sure they don’t have to withdraw equities to pay for living costs in a down equity market. Feeling they can no longer earn money from work, many feel more vulnerable to a major market downturn. This feeling of vulnerability leaves many fearful of major investment loss.
Current Methods for Addressing Investment Risk
Most retirees and their financial advisors try to address these issues through the lens of diversification. They try to decide what proportion of their money to put in equities and what proportion to put in fixed investments. People have learned during their work lives that diversification works well and they think it can be extended into the retirement years. However, diversification requires time for the markets to recover. Time acts as a crucial protector. Workers can typically wait a long time without having to make withdrawals until the value of their equity investments returns to its former levels, but retirees do not have the time workers have. The stock market has lost at least half its real value (accounting for inflation) five times in the last 110 years, more specifically, once every 22 years. Sometimes it has recovered relatively quickly, sometimes it has not. How many retirees can withstand a 50% drop in equities that does not recover at least fairly quickly?
Some advisors use the “bucket strategy” to help their retired clients deal with investment risk. But with retirees’ greater sensitivity to risk, bucketing may not be sufficient to help retirees feel comfortable with a major loss of assets and, as people age and their life expectancy is significantly reduced, even their “long range” bucket may be too close to wait out a sustained down market. Our company’s research has found that as people age, their planning orientation gets significantly shorter range.
The Equity Allocation Dilemma
Here is the dilemma most retirees face: how much to allocate to equities. William Bengen, whose detailed analyses of withdrawal rates in retirement led to the famous 4% rule, stated that allocations of at least 50% to equities are imperative in retirement, while lower allocations are “counterproductive.” However, most retirees put less than 50% in equities. They think they are increasing their financial security by reducing exposure to equities, but they are not achieving this: many are robbing themselves of the ability to get the returns they need.
What about those who put half or more of their assets in equities? They face the risk of a major downturn sometime during the course of their retirement that could lead to a loss that could severely damage their financial security. The average age of retirement is now 63, with half of people retiring prior to that age. A husband and wife, both retiring at age 63, have a significant chance of having at least one of them remaining alive and needing income 30 years later. If the stock market has lost at least half its value five times in the last 110 years, what is the chance it will suffer that level of loss again within the next 30 years? Is that a chance this couple should take?
There is a clear solution to this dilemma: products that allow the significant investment in equities that most retirees require and still protects against an intolerable level of loss. There are three categories of products that are effective:
There is another advantage of these solutions that should not be underestimated. They provide retirees with peace of mind. Anxiety has a cost and retirees who are just depending on diversifying stocks and bonds often worry about the very real possibility of an unsustainable loss. With these solutions, they can be free of that worry. When I have discussed these concepts with financial advisors, I often hear the objection that most people will be better off if they do not use these solutions because of the cost of the guarantees or the lower performance of solutions that reduce volatility. To address that objection, I would like to discuss an informal survey my firm did, based on an airline analogy. (The analogy was suggested to me by Eric Henderson from Nationwide. I made some changes to the analogy, so any defects are certainly mine.)
An Airline Analogy
In the survey, we described a new hypothetical airline. The airline, we said, found that all other airlines invested a lot of money in safety programs, including parts replacement and checking programs, that contributed very little to overall safety. Indeed, their analysis concluded that they could spend considerably less money on safety programs and still have planes that would land safely 99.6% of the time. In other words, their competitors were spending a lot of money that only made a difference in four tenths of one percent of the flights. They decided to compete on price by not taking the safety steps that were deemed least effective. When we asked respondents if they would take a flight with this airline if it landed safely 99.6% of the time, a third said they would do it for substantial savings.
Our next question involved this airline offering the following deal: If you paid for two roundtrips per year for the ten years before retirement, the airline would let you fly for free for two roundtrips per year for ten years after you retired. The benefits of that are clear. For many retirees, the ability to fly for free for ten years would make a major difference. The “fly” in the ointment is that the risk of being involved in a plane crash for those 40 flights would be at 16%. How much of a discount would you need to take a 16% chance of being in an airplane that crash-landed? None of the people I interviewed would take the deal.
The key point I am trying to make is that when people embark on an investment strategy for retirement, they are accepting a level of risk for an extended period of time. The risk of a major downturn may be small this year, but what about once over the next 30 years. One could try to time the market, but is it wise to count on that?
In the airline analogy described above, 84% of the people would be better off if they took the deal the airline offered. But all considered it unwise. So, while advisors are right that most people will be better off without protecting against downside risk, the most important thing is making sure it does not happen to you.
When financial advisors state they do not want their clients to pay for protection that most will not need, they are missing the point that most retirees would be willing to pay that cost for the protection. Further, even if the stock market does not go down significantly, retirees know that it’s a possibility, which causes a certain level of anxiety. Having downside protection or guaranteed lifetime income not only provides real protection, it also provides a feeling of security that has a value that should not be underestimated. There is one more point: in many cases using these products will not cost the retiree anything, even though the principal protection products, the guaranteed lifetime income products or they dynamic asset allocation products do have a cost. That is because, with these solutions, many retirees can actually take more equity risk with other parts of the portfolio and in good markets, with this extra exposure to equities, their additional gains can more than pay for those product costs.
Conclusion: Develop a New Retiree Portfolio
Financial services companies and advisors have done a great job of teaching accumulators about the value of diversification. In support, they have created metrics for how to allocate between stocks and bonds and how to change this allocation as retirement approaches. They have also developed tools, such as the investment risk tolerance questionnaire, to help people decide how much to allocate to equities and to fixed income instruments.
I think the next task is to provide this type of support for the effective retirement portfolio, which is extended to include downside protection, guaranteed lifetime income solutions, and other investment strategies that protect against excessive investment loss while providing enough of an allocation to equities to allow for the opportunity for a needed return.
This means new metrics, new tools, and new educational programs. For the current and future generations of retirees who have to depend much more on their own assets for financial security, and less on defined benefit plan income, these new portfolios will make a crucial difference.
With everyone attached to their smartphones these days and accustomed to sharing so much information, it seems like it should be easier and cheaper than ever to reach your intended survey population. That isn’t always the case. Some populations, like immigrants, marginal groups, older consumers, consumer experts and those in more rural locations, are especially hard to reach.
Greenwald Research has some answers about surveying hard-to-reach consumer populations:
Leverage your own lists of consumers who are customers, employees, and potential customers. Although you’ll need to refresh these lists regularly, this is one of the best places to start for sample. Ask your research vendor with an in-house programming team for tips and tricks on how to keep these lists clean and ready to use.
You can also build on your current lists by creating landing page on your social media sites or your website. Offer up a “call-to-action” geared towards your target audience such as an information sheet, a free e-book, or a coupon, which you can exchange for an email address. Not only have you found someone interested in your survey topic, but you have increased the chances of having them participate in your survey by virtue of them having recently given you their email address.
Think creatively about other ways to learn about your target group. Who do they trust? Especially for populations that are more hesitant to provide personal information, like immigrants, finding one of their trusted resources can do two things for your research.
First, qualitative interviews can inform your online questionnaire. Conducting one-one-one interviews with trusted resources can help you know what to ask and how to ask it for maximum effectiveness.
Second, it can lead you to your target audience. Trusted resources can introduce you to members of the population you want to speak to the most, as well as other trusted resources for that community. This approach, known as snowball sampling, will ensure that you are getting quality respondents for your research project.
Panel providers are one of the most common places to go for consumer sample, but you have to be careful. In our online studies, Greenwald & Associates has found that there is an ever-increasing number of respondents “gaming the system” by logging on multiple times or misrepresenting who they are.
If you are going to use an online panel provider, be sure that you are managing them and screening your respondents vigilantly. For hard-to-reach populations, find a specialty panel provider and/or enlist the help of a market research firm to write the screener and manage the screening process. This will help you avoid a situation of “Garbage in. Garbage out.”
Some respondent groups just like to open a piece of mail or answer questions via phone, especially older generations. If you are trying to survey respondents who are 60+ years old, consider a mail or phone survey.
Knowing your audience and how to best reach them is an art and a science. Start gathering your list and thinking through your research mode early. Or, if you are in a rush, reach out to a market research firm who has more resources than you might internally.
One of the most useful tools that marketers, product developers, and thought leaders have is the ability to understand the composition of the markets and distributors they serve and be able to target strategies, products, and communications to the most responsive and valuable segments. Today’s investment climate is so complex and difficult and has changed so significantly in such a short period of time, that we believe that an enhancement to that venerable tool is now required of companies offering investments, including annuities. We call it “dynamic segmentation,” which is the tracking of segments over time and identifying newly developed segments: the re-segmentation of the market.
This need is caused by the intense nature of the change we are undergoing, in both the investment climate and, probably, investor psychology. Many investors and advisors are anxious and confused. They are eager for guidance, education and advice from investment and insurance companies. This is a good time to act. But, especially in this time of heightened concern, it is important to communicate effectively.
We are now confronting, as you know, two related crises at the same time: a health crisis and an economic crisis. To a significant extent, these twin crises have been about risk. The media have besieged us all with information on the risk of becoming infected, the risk of becoming ill, the risk of dying, the risk of a Great Depression, the odds of the stock market reaching specific levels.
Also, the stock market has experienced its steepest decline ever. My company completed a survey of consumers and advisors one day before the first major coronavirus-related stock market decline. Very few consumers, or even advisors, saw this stock market decline coming, even though cases of the novel coronavirus had been increasing in China for a while. The fact that this change was so unexpected magnified the impact and reduced people’s sense of being able to prepare in advance. This steep decline in the market certainly affected people’s feelings about stock market risk, while the health crisis probably changed views toward risk in general and investment risk in particular.
Investors and advisors are reacting to three related issues, which are ultimately causing them to re-evaluate their investment strategies. The first is the very feeling and assessment of risk and tolerance for risk. As the risk of death goes up, as the risk of job loss, a Great Depression and food shortages rise, the way people assess the value of taking investment risk can also change. The strong focus on risk and the range and severity of the risks we face are quite likely to affect tolerance for investment risk, beliefs about risk, and responsiveness to solutions.
The second issue is the low interest rate environment. Importantly, this is all occurring in an extremely low interest rate environment. In the past, there was often a reasonable place for investors to park money that was safe but still provided a reasonable return. This is certainly less true now. This makes dealing with investment risk more complex.
The third issue is the equity market climate and outlook. Before these crises financial advisors tended to take one of three approaches:
During the over decade long bull run the first strategy worked very well. But it is not working well now. This will likely lead many advisors to consider new strategies and be receptive to new approaches. They may well fall into different and, perhaps, new segments.
The way investors and advisors are segmented, and the very composition of the segments has likely changed. If you want to effectively identify and understand key markets, we submit that you should not depend on former segmentation models.
Communicators are most effective if they understand the viewpoints, concerns, beliefs, and attitudes of the people they are communicating to and tailor messages to specific segments. A good marketing or thought leadership effort will be pertinent to all, but it will be most effective with a specific group and companies should be very tactical in selecting which groups to target.
Companies that conduct new segmentation studies will identify the characteristics of investors, and advisors, who present the highest potential. Importantly, they will have insights on how to approach key segments and what proof points and types of support will be most meaningful.
It is obvious that the twin crises are far from over and that the range of possible outcomes is extremely wide. During the period ahead investor and advisor views will be further impacted. Indeed, new segments may emerge as investors and advisors react differently to these further changes. Successful companies will be cognizant of the degree of change and implement a new segmentation study when the level of change demands it, which unfortunately may be in a year or before. In this climate, segmentation must become dynamic.
Thirty-six million Americans have filed for unemployment benefits over the past two months. While these are disproportionately less wealthy Americans, many high-profile companies have been laying off or furloughing their workforce as well, among them major hotel chains, airlines, clothing manufacturers, and retail stores.[1] For those of us still lucky enough to be working, our offices are now co-located with our families. Two questions frequently arise: when will this be over and what will working look like post-COVID-19? While we have little control over the answer to the first question, the second one is important for us, especially employers, to consider. A post-COVID world should reflect what we’ve learned about people and what they need to flourish.
One of the narratives that COVID-19 has disrupted is one about working parents, especially professional women/mothers/caretakers. The narrative says that women can wear multiple hats – be power players at work and nurturers at home, and thus live to their full potential. For this to be true, however, women need to be sure that the dual life is indeed worth it. That might be harder than you expect. (A Gallup poll in 2015 showed that 56% of women with kids under 18 would actually prefer to stay at home, if they were free to do so.[2])
In order for both parents to work outside the household, a decision is needs to be made: is it more valuable to be home with family and forgo a paycheck, or to be out of the home and pursue a career? COVID-19 has made it clear that this choice is not limited to how much we make, but the risk we are undertaking to pursue careers that limit the time spent at home or caretaking for family members. This tension interferes with work quality, timeliness, and worker engagement. These are issues that we research frequently, lumped under “Social Determinants of Health” (SDoH), but they are largely discussed as they relate to the working class, immigrants, and the poor. COVID-19 has shown that it is not limited to these groups at all. In fact, the need for better support for employees/caretakers/women/mothers/fathers crosses race, class, and income levels. Employers need to think critically about how to provide for employees with these needs if they hope to get their workforce back to work, both in body and in mind.
There are two points that I’d like to make related to solving for the upended narrative of working parents. First, when more women work, economies grow,[3] and so does the value of the companies they work for. It is in employers’ best interest to find ways to support women in having careers to add to the value of their organizations. Second, raising children is the most important of several jobs that some women have, but the ability to juggle multiple roles and to create value for employers is dependent upon the ability for mothers (and fathers for that matter) to be certain that their children are in a safe and healthy space and that the value of the work outside the home somehow improves the overall value of the family.
Employers have made significant changes due to COVID-19. This has allowed many to continue working remotely, from the home. Even better, colleagues, employees, and clients have gotten used to hearing the sounds of home life in the background of work calls. It has ripped up the guidebook for parents who work and, shockingly, it hasn’t disrupted work either – or at least not on the surface. Many companies have made the move to telework semi-permanent and others are closing offices and preparing for the office of the future – the home. But what does this mean for parents? Is this the best way to support employees to achieve the greatest value at home and at work?
I argue that it does not address the central thesis of the narrative – the tension of the dual job: wanting to be there for Junior and for the employer.
‘Who is watching Junior’ is a central point. Parents who work need more than just the flexibility to choose where to work. They need their children to be in a safe place while they are working, ideally not the same place as they are working. Practically speaking, however, nearly half of licensed childcare centers will likely close within weeks without government funding, according to the National Association for the Education of Young Children (NAEYC). But, even if childcare facilities reopen, how many parents feel like the second paycheck is not worth the risk? And, for those who do continue to work, what is the plan for the next large health crisis? It seems clear that employers should think carefully about what childcare looks like and to prioritize it just as much as laptops and healthcare for each employee.
Interestingly, this is not the case. In a Greenwald survey conducted with The Insiders, our proprietary benefits broker panel, 64% of brokers said that they and their clients believe that work-at-home policies and supplies are important to reduce business interruption. Only 3% feel that childcare resources and support are important to reduce business interruption.
Work-from-home policies seem to be how companies want to address the upending of the narrative of working parents, but simply providing the option to work from home when one’s children will be underfoot will not create the greatest value for the company, nor for the employee. There need to be better, more creative solutions if employers are to make returning to the workforce attractive. Flexible work arrangements, support for affordable childcare options, and promotion of a culture that supports a healthy life outside the office are all good starts, but I’m anxious to see what other solutions employers invent.
[1] Bureau of Labor Statistics, May 8, 2020. https://www.bls.gov/news.release/pdf/empsit.pdf
[2] https://news.gallup.com/poll/186050/children-key-factor-women-desire-work-outside-home.aspx
[3] International Monetary Fund (2018). Pursuing Women’s Economic Empowerment
Over the past several months, our markets have experienced both volatility and an extremely low interest rate environment. These occurrences, especially in combination, certainly present challenges to advisors and their clients.
Despite some reopening, the economy is facing a great deal of uncertainty. Unemployment is still high, having reached levels not experienced since the Great Depression. Some expect major sectors of the economy, such as restaurants, airlines, hotels and commercial real estate, to be deeply affected long term, with some major companies failing to survive. One of many challenges to investors is that the course of the economy is tied to the course of the pandemic, something that is extremely hard to predict.
In recent weeks, Greenwald Research has conducted in-depth interviews with advisors to better understand their current approach to investment and income strategies, particularly for those approaching and in retirement. Following the events of 2008, we conducted hundreds of interviews with advisors. Our experience with this research suggests that the reaction to the current crisis among advisors is fundamentally different.
In 2008, there was a widespread crash of the real estate and equity markets. The prevailing advisor focus during this time was to prevent clients from panicking and selling their investments at a loss. Because the loss was so deep, advisors did not report succeeding all the time. In the years following the crash, the market showed a steady rise and advisors reported that those who used a growth strategy were rewarded over those who attempted to blunt gain a little to provide a smoother ride or mitigate loss.
This market is has unfolded differently so far. One reason is the impact of health concerns of Americans on spending behavior. Some companies are not harmed by and may even benefit from COVID-19, such as Amazon or technology companies. Other companies have suffered from COVID-19, but are valued lower than they should be or are in an area that could bounce back quickly.
Because of this, we have seen some advisors who feel that rather than abandoning the market, this is an ideal time for active investment management among various sectors affected differently by COVID-19.
Furthermore, there has been a different reaction among the older client base. These clients have been through 9/11 and 2008 and have drawn some lessons from those experiences. On balance, advisors have seen as many or more of these clients that want to buy more equities as want to sell them.
We see this environment having several different effects on the investment climate and potential strategies and products:
Clearly, not all market downturns are the same and not all market downturns require the same adaptations. This is especially true of the current economic decline, totally integrated in a health crisis. Our research suggests that neither advisors nor investors have fully thought through the issues or how to respond or even if a new response is necessary. As the health crisis unfolds, and the economic impact is resolved, investment strategies will have to adapt. It is the role of the financial industry to develop new strategies in the interim that will protect advisors’ clients and give them an opportunity for a necessary level of return: a daunting task.
