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Appeal to Investors' New Conservative Outlook


Besides learning that investors have not bailed out of their 401(k) plans, contrary to scare-mongering media reports, there was one other surprising moment at this month's General Membership Meeting of the Investment Company Institute. And that was when Richard Davis, chairman of U.S. Bancorp, looked directly at ICI President Paul Schott Stevens and urged him to prompt his member mutual fund companies to figure out how the financial crisis has affected various age groups.

Davis is not alone in calling the financial crisis a life-changing event. Increasingly, there have been reports that the global economic upheaval has made such an impression on Americans that it will have a lasting effect on how they spend and save.

Even after the recession ends, according to a survey by financial consulting firm AlixPartners, Americans plan to adjust their spending to 86% of pre-recession levels, which effectively is a 10% drop. They will also save 14% of their earnings, with replenishing their 401(k) and other retirement savings accounts their biggest concern.

Most notably, Americans are more committed than ever to saving and investing, which is remarkable since some people have lost between 30% and 60% of their life savings over the past six months.

At this inflection point, the mutual fund industry has a tremendous opportunity to address and embrace these concerns. First, we need to offer more conservative choices and simpler, scaled down 401(k) plans that include target-date funds with more realistic glide paths. We also need to convince more sponsors to automatically enroll and re-enroll workers in their retirement plans, and to automatically step up their contributions each year. Making retirement-income solutions and annuities available within 401(k) plans will probably turn out to be the best way to capture rollover dollars, and they could become quite popular among our customers.

We also should lobby for mandatory financial education in school and provide meaningful financial advice in 401(k) plans through third-party providers. To date, much has been made of advice in DC plans, but it is actually quite rare.

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