Aphrase in vogue in corporate circles these days is “measure or be measured.” Financial services is a business of measures. We focus on returns, alpha and beta, standard deviation and reversion to the mean. We measure everything we do against benchmarks.
But too often, our industry has forgotten the most important benchmark of all: our responsibility to the people we serve. They are the reason that our industry exists.
Real people facing challenging times depend on the pension funds and 401(k)s that we manage, and the mutual funds and exchange-traded funds that we sell. They are firefighters, teachers, parents and students, and all of them are or will be retirees.
It is an especially important message now, during National Save for Retirement Week.
That is because behind that observance lies a serious indictment of our industry and how we are serving the public:
• The Employee Benefit Research Institute estimates that fewer than 3 in 5 American workers are even saving for retirement.
• A Boston College study puts the U.S. retirement savings shortfall at $6.6 trillion.
• McKinsey & Co. said that the average American family will have less than two-thirds of the savings that they will need for retirement.
It isn't just that people aren't saving or saving enough for retirement. They are also not investing in ways that will allow them to meet their future needs.
Research that BlackRock Inc. did over the summer indicates that in this new world, investors are more uncertain than ever. Because they have little confidence in the future, they are keeping their portfolios on hold, parking their money in “safe” but low-yielding bonds or cash that provide a comfort level, even though they know these holdings can't provide the returns that they need for retirement.
We found that 6 in 10 financial advisers said that clients are lowering their expectations for their retirement. Fully 83% indicated that their clients plan on working longer.
So how do we improve on this most important responsibility benchmark? How will we help the people we serve move beyond their financial anxiety and reach their retirement goals?
First, by demonstrating integrity.
Our research shows not just fear and anxiety on the part of investors. There is also real anger and frustration at the loss of savings among older Americans during the financial crisis and with today's low returns and volatility.
In the face of recent scandals, many people think that the big players in financial services have stacked the markets against small investors.
In this year's annual Edelman global survey of trust, financial services remained one of the least trusted industries: Just 46% of investors expressed confidence in our sector. When asked how financial firms could rebuild trust, 76% of respondents focused on ethical business practices, while 73% said our industry has to put “customers ahead of profits.”
At every level of our business, we need to show investors that our values aren't just words on a wall or in a sales brochure, and that at the heart of those values is fiduciary responsibility. We will always put their goals and their interests ahead of our own.
FOCUS ON TRANSPARENCY
Second, we need to demonstrate transparency. We must help investors truly understand what they are buying, what the costs are and, most important when it comes to rebuilding confidence, where the risks lie.
To build trust among individual investors, the financial services industry needs to do a better job of listening. Seventy-four percent of respondents in the Edelman survey said that they want financial services companies to “listen to customer needs and feedback.”
We always tell our own investment professionals that when they are on a 30-minute client call, 20 minutes should involve listening and the other 10 should be devoted to responding to what we have heard. We should be providing answers to client concerns, not boasting about our capabilities.
Most important, we need to provide a long-term perspective. Investors read plenty of gloom and doom in the headlines these days.
But even during uncertain times — perhaps especially during uncertain times — there are opportunities for people who have the confidence to take a long-term view.
This is especially true when it comes to retirement. The blessing of longer lives has become a burden for too many people.
Yet extended life spans also provide an opportunity for a longer investment horizon, which can be used to investors' advantage. We need to show where those opportunities lie, and present them to investors in credible and trustworthy ways.
As we focus on helping people understand what it takes to save for retirement, we need to acknowledge a hard truth.
In too many ways, our industry has been measured and found wanting when it comes to the most important benchmark of all: our responsibility to prepare people for a better financial future. It is time for us to reconnect with our roots, the real reason for our existence and the real measurement of our success: helping people to build their dreams.
Robert Kapito is president of BlackRock Inc.