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Research

Research Studies–Proposal Requests

Request for Proposals–Financial Advice to the Middle and Lower Income Markets–Phase I

1. Overview

The vanguard of the baby–boom generation has just begun to cross the retirement threshold with legions to follow over the next 10 to 15 years. Individuals in our society need financial advice as they prepare for retirement and navigate the challenges they will encounter throughout their retirement years. The type of advice needed by Americans age 50 and older depends on many factors–amount of wealth, level of financial sophistication, demographics, life–changing events, etc.

The Society of Actuaries has recently issued a Request for Proposals to identify representative consumer profiles and retirement income strategies appropriate for each profile. It is intended that the study resulting from this Request for Proposals will enhance the collective knowledge of the financial issues encountered by the types of consumers represented and the approaches for advice needed in each situation. But, it is also anticipated that the study will confirm that:

• The need for financial advice is not limited to high net worth individuals. In fact, a person with moderate or low net worth perhaps needs as much advice as a person of high net worth.
• The advice needed by an individual with moderate or low net worth is substantially different than the advice needed by a high net worth individual primarily because of the prospect of different risks.
• The need for financial advice for individuals with moderate or low net worth has grown as a result of the transferring of significant retirement risks from employers to employees.
• In most instances, financial advice is either unavailable to persons of moderate or low net worth; these individuals are unwilling to seek appropriate advice; or they are unwilling or unable to deploy advice or information already available to them.

Read additional information on high, moderate, and low net worth markets.

 

2. Research Objective

The Society of Actuaries Actuary of the Future Section is seeking researchers for Phase I of a two phase effort to address advice issues pertaining to persons of moderate and low wealth. In Phase I, the primary objective is to examine why it appears that appropriate financial advice is generally not available to this segment of the American public. For Phase II, the goal is to use what is learned from Phase I and explore alternative ways for providing such advice.

3. Deliverables

Further details about the expected deliverables for both phases of this research initiative are summarized below. Phase II information has been provided to help individuals in preparing Phase I proposals.

Phase I–Barriers to Advice

The purpose of Phase I is to identify potential reasons why advice is generally not available to persons of moderate or low amounts of wealth. Issues to be addressed in the proposal may include one or more of the following, although this list is not meant to exclude other issues that a proposer may wish to consider.

• Availability of Information
• Is there sufficient and usable information in the public arena on social insurance and private insurance programs including Social Security, Medicare, Medicaid, Medicare Part D, Veteran's Benefits, private health and long term care insurance, as well as the costs associated with these programs?
• Is there sufficient and usable information in the public arena regarding the phases of retirement, the characteristics and risks associated with each phase, and strategies for addressing changing risks as a person moves from one phase to another?
• Is there enough information in the public arena regarding ways to manage risk – risk avoidance, risk reduction, risk transfer, and risk acceptance and the costs associated with these strategies to enable a person to identify his or her own risks and to develop a plan to address those risks?
• Quantity and Quality of Advice Givers
• Who currently is providing financial advice to persons with moderate and low amounts of wealth? Representatives of the financial services industry? Employers? Employees of governmental social benefit programs? Not–for–profit organizations such as AARP? Financial planners? Insurance salespersons? Friends? Co–workers? Others?
• How readily available is the advice? Are there any groups or organizations specifically targeting this segment of the public? Is the advice provided comprehensive or is it fragmented? Can a person acquire advice from a single source that examines all available resources and sets forth a plan that comprehensively addresses all the individual's needs and risks? Is there a sufficient number of individuals who have been trained and are qualified to provide appropriate advice?
• What characteristics should providers of advice to this segment of the American public have to demonstrate they are qualified? What training and credentials do they have? What is the focus of the advice they give: providing unbiased counsel or making a sale of a product or service?
• Willingness to Accept Advice
• Do individuals with moderate and low levels of wealth consider the significance of the decisions they make (or avoid making) regarding timing of retirement, guaranteed vs. nonguaranteed income options, and long term care expenses?
• Are individuals with moderate and low levels of wealth willing to seek advice and if not, why not?
• Do these individuals tend to avoid discussions with others about their personal finances as well as dealing with issues only when they become a crisis?
• Economics
• The major financial services industry firms have been unsuccessful in penetrating this market. Why not? What attempts have these companies made and why have they been unsuccessful?
• Is it feasible from a cost vs. benefit perspective for any entity to work with this segment of the population?
• Other Barriers
• Other potential barriers should be identified and discussed based upon the research, knowledge and experiences of the researcher.

Given the inherent nature of many of these questions, it is anticipated that there may be a lack of source data available. As a result, proposals should clearly specify the approach that will be taken to conduct the research and expected sources of information. It has been further contemplated that a possible result of this project may be a white paper discussion of the issues with recommendations for further study to solidify the observations with demonstrable facts and evidence. It is suggested that proposals include a consideration of how the results of the project may be used in this context.

Phase II–Strategies for Providing Advice

The Phase I portion of the study will explore reasons why appropriate advice is generally not available to persons with moderate and low net worth. It is anticipated that causes for the failure of current systems for delivering financial advice will be identified. In Phase II, the researcher will start with the systems and structures that are currently in place to disseminate information and advice, assess the effectiveness of these systems, and propose alternative ideas and strategies to potentially reach these markets.

Issues to be addressed may include, but are not limited to, the following:

• Education or Advice
• Is enough being done to educate the public about retirement risks and issues? Have education efforts been successful? Have education efforts reached a point of diminishing returns? If not, what other initiatives should be undertaken?
• If the focus of communications is changed from "dissemination of information" to "advice giving" will a significantly larger portion of the public be prepared for retirement than are currently prepared?
• What incentives could be offered by government, employers, and other sources to encourage individuals to use educational materials and to seek financial advice for retirement?
• Delivery Structures
• What role should the following play in delivering retirement advice to individuals with moderate or low net worth – government, employers, for–profit entities, not–for profit organizations, volunteer organizations, other entities?
• What are the advantages and disadvantages associated with each entity? What barriers must each type of entity overcome to successfully provide appropriate financial advice about retirement?
• Who might purchase financial advice about retirement? Can a process for preparing a comprehensive financial retirement analysis be developed that will be affordable to the average moderate/low net worth individual? Who else might be willing to underwrite the cost of advice given to individuals – government, employers, AARP, etc.?
• What resources are needed by advice givers? What knowledge and skills sets should an advice giver have? Is there an ideal staffing structure for advice givers that will result in economies of scale, efficiently deploying individuals with a variety of skill sets?
• Public Policy
• Is the issue of financial advice for middle wealth America significant enough for a public policy discussion?
• Would an educated public with access to quality advice deploy their own individual resources more wisely, reduce its reliance on government safety–net programs, and reduce the overall tax burde

4. Proposal

   To facilitate the evaluation of proposals, the following information should be submitted:

   1. Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
   2. An outline of the approach to be used, emphasizing issues that require special consideration. Details should be given regarding the techniques to be used, collateral material to be consulted, and possible limitations of the analysis.
   3. Cost estimates for the research, including computer time, salaries, report preparation, research costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
   4. A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions.
   5. Ideas regarding the form and distribution of the final report, both for immediate release and for permanent reference (e.g., submission to North American Actuarial Journal, SOA Monograph Series, Actuarial Practice Forum, CD ROM).
   6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

    

5. Selection Process

   The Personal Actuary Network of the Actuary of the Future Section is responsible for the selection of the proposals to be funded. Input from other knowledgeable individuals also may be sought, but the Personal Actuary Network will make the final decision. The SOA's Research Actuary will provide staff actuarial support. A Project Oversight Group will be appointed to oversee each project that is initiated.

6. Questions

   Any questions regarding this RFP should be directed by fax, or e–mail to:

   Ronora Stryker
   SOA Research Actuary
   f: 847.273.8514
   e–mail: rstryker@soa.org

7. Notification of Intent to Submit Proposal

   If you intend to submit a proposal, please send written notification by May 15, 2009 to:

   Jan Schuh
   SOA Research Administrator
   f: 847.273.8556
   e–mail: jschuh@soa.org

8. Submission

   Please e–mail a copy of the proposal to: Jan Schuh at jschuh@soa.org.

   Proposals must be received no later than May 29, 2009. It is anticipated that all researchers who have submitted proposals will be informed of the status of their proposal no later than June 30, 2009.

   Note: Proposals are considered confidential and proprietary.

9. Conditions

   The SOA reserves the right to not award a contract for these research topics. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available to proceed. The SOA also reserves the right to redirect the projects as is deemed advisable. The SOA intends to copyright and publish the results of this research. The research will be considered work–for–hire and all rights thereto belong to SOA. However, appropriate credit will be given to the researcher(s).