Do Consumers Want Advice Or Not?


Some reports rolled out this week having to do with whether and how consumers use financial and retirement advice. The long-story-short is that people do tend to use advice in investment venues but not so much in retirement plan venues such as the 401(k) market.

This divergence can be confusing to insurance and financial professionals who are trying to identify advice opportunities or who simply want to get a handle on the advice market. Are consumers into advice or not?

This week’s reports don’t address that question directly, but they do help focus the picture a bit.

Here’s a brief tour:

A study from the Insured Retirement Institute (IRI) found that the majority (62 percent) of investors have consulted a financial planner about retirement, investing and other matters. What’s more, 28 percent of those people cited “advisor recommendation” as their top reason for selecting an investment, although past performance (26 percent) and rate of return (25 percent) were factors too.

Hmm. Those numbers make it sound as if people are definitely into advice — getting it and following it.

But wait, there’s more: A new Schwab Retirement Plan Services survey of 401(k) plan participants found the opposite. Participants are much more likely to have someone change the oil in their car (87 percent) than have someone help them choose their 401(k) investments (24 percent), the researchers said drolly.

In addition, only 23 percent of participants who do have access to professional 401(k) advice reported having used it. That’s even though 66 percent of the 1,000+ participants said they “would like” to have personalized investment advice in their 401(k), and 87 percent described the 401(k) as a “must have” benefit.

So, in this survey, advice was hardly a wow.

Then there’s the new TIAA-CREF survey of 1,200+ public sector workers, including teachers, firefighters, police officers and several other occupations. It found that receipt of retirement planning advice has actually declined. In April 2014, only 38 percent of these workers reported having received advice from a professional financial advisor within the last three years, down from 51 percent in 2012. No wow there either.

However, there was this ray of light: Twenty-four percent of the workers who did receive advice in 2014 told TIAA-CREF that they followed all of the advice. That’s up from 18 percent who followed advice in 2012. Maybe, in this case, the advice-seeking group is beginning to coalesce?

The above findings are not as contradictory as they may seem at first blush. The results show that consumer interest in, and use of, advice varies by marketplace.

For example, the IRI study focused on the views of 800 “investors.” Although defined as adults age 23+ with at least $25,000 in investable assets, these investors actually had more — 72 percent had at least $250,000 and 45 percent, at least $500,000 — much of it invested in mutual funds and exchange traded funds (85 percent), stocks (84 percent), and bonds (54 percent).

It stands to reason that people in this market would need, seek and use financial advice. And they do; 62 percent told researchers that they invest through a broker or financial planner, although some also invest through a retirement plan (54 percent) and invest directly (53 percent).

Meanwhile surveys about advice in 401(k) and other retirement plan environments tend to include more people of lesser means. For instance, the average 401(k) balance at year-end 2013 was $89,300, according to Fidelity Investments; some participants also hold additional assets elsewhere but the 401(k) drift is more mid-market than in the investor market. Also, retirement plans differ not only in investments options but also in availability, accessibility and type of advice as well as in education on advice. So views on advice here are bound to differ and be more muted.

Contradictory reports on advice will likely continue for a while. The good news is that researchers are highlighting where interest in advice exists and where it appears to be growing.



Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Connect with Linda →

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