“Longevity risk—or the possibility of outliving your savings—is one of the starkest examples of a serious financial fear that has largely gone unaddressed by Americans,” notes Northwestern Mutual in its Planning and Progress Study 2015.
This fear is prevalent: 31% of U.S. adults feel there is a higher than 50% chance they will outlive their savings, and 12% believe the odds are 100% this will occur.
More than half (52%) “have not taken any steps to address the risk of outliving their savings,” and should savings run out, 26% have no idea what to use as a safety net and 26% believe they will have no recourse.
Given these large concerns about financial security, one obvious solution to the problem would be that consumers set financial goals and work with a professional financial planner to achieve a stronger financial future.
Research findings this week indicate financial insecurity is a problem, and that although professional help is available to consumers, barriers exist between the stark need for assistance and the remedy of financial help.
Do you know what prevents your members from seeking financial planning? How can you remove the obstacles in their way?
‘You know how advice is. You only want it if it agrees with what you wanted to do anyway.’ --John Steinbeck
Much evidence exists as to consumers’ need for financial help.
“Two in Three Adults Worldwide are Financially Illiterate,” according to Gallup, and the U.S. ranks 14th in financial literacy worldwide. Scandinavian countries enjoy the highest rates of financial literacy in the world at 71% in Norway, Denmark, and Sweden.
Only 57% of American adults are considered financially literate. Americans “have a relatively weak understanding of compound interest… Even among those who have a credit card or who finance their homes, one-third… could not correctly answer the compound interest questions.”
Further, survey results reveal a five-point financial literacy gap worldwide between men and women, as 30% of women are financially literate in comparison to 35% of men.
And, “Americans Misjudge Savings Needed for Retirement,” notes an article at plansponsor.com. Approximately two-thirds of consumers believe they will require less than $1 million to retire, or don’t know what they might need.
Financial experts suggest consumers should set aside at least 10% of earnings toward retirement and most will require far beyond $1 million post-retirement given longer lifespans.
However, one-third of survey participants “think they should be saving less than 10% for retirement.”
Another complicating factor to add to the large lack of financial knowledge—and yet other need to obtain financial advice--is “America’s Coming Cognitive Decline,” per a Bloomberg post.
A Harvard paper by four economists indicates that “cognitive function peaks at age 53” as analysis of fees and interest rates paid by borrowers in various transactions shows such payments at the minimum at this age.
But “cognitive function really starts to go downhill for people in their 70s,” and “the eldest of the baby boomers will start turning 70 in January.”
Government policy has favored those in their 40s and 50s when it comes to savings, notes the article, “leaving those in their 70s and 80s to the wolves.”
Do you sufficiently address financial needs of senior members?
‘Many receive advice. Only the wise profit from it.’ --Harper Lee
What obstacles prevent consumers from seeking financial advice and help?
According to reversemortgagedaily.com, “71% of Americans Fear Talking to Financial Advisers.” Forty-seven percent of all survey participants indicate they hesitate to trust financial advisers with their personal data, and 41% think an adviser would not be able to help.
Forty-nine percent do not seek help, citing expense for the advice as a primary concern.
“Our fears are often not based in reality,” says a spokesman from a financial planning firm. “Many financial advisors are neither expensive relative to their value, nor do they only provide the bad news some people fear. The only way for people to eliminate fear is to face it head on and take the initiative to meet with a financial advisor.”
Another hurdle for consumers is that “Nearly half of Americans believe they need a sizable nest egg to justify working with a financial advisor,” notes LifeHealthPro.
Forty-five percent of survey participants in a TIAA-CREF analysis believe $50,000 is required to be worth seeking professional financial advice. And of those who never obtained help, 63% say this is because they have inadequate funds to invest.
However, good outcomes result for those who do seek help as after consultation with a professional, 79% will “run the numbers” to find how much money will be needed for retirement, in comparison to 32% who do not seek assistance.
The good news is that “Americans’ Use of Financial Advisors, CFP Professionals Rises,” according to a recent CFP board survey.
Use of professional financial service providers is up from 28% in 2010 to beyond 40% in 2015. Survey participants say this is not because of ripples caused by the financial crisis, but rather due to “a need for better financial guidance.”
Forty-one percent think financial advisors have greater importance in this time period, compared to 12% who find them less important.
And, there is “A Flurry of Growth in the Online Financial Advice Field,” notes The New York Times. “Digital advisory firms will have $53 billion under management by the end of the year, up from $16 billion at the end of last year.”
It is anticipated that digital advisers will handle $5 trillion within the next decade.
Selling points for consumers are “Low minimums, low fees and the ease of setting up an account.”
The downside to robo-advisors, according to ThinkAdvisor is that they are not really advisors. Such services lack in good data collection from customers, consumers pay higher fees, conflicts of interest with brokers and others exist, and digital providers do not meet a fiduciary standard of care clients can expect from traditional advisors.
Ultimately, clients must look out for their own interests.
‘Advice is like snow. The softer it falls the longer it dwells upon, and the deeper it sinks into the mind.’ --Samuel Taylor Coleridge
Financial advisors can take steps to better relate to consumers when they consider psychological as well as financial needs, according to time.com.
Consumers fall into financial ruts. They will appreciate fiduciary standards professionals offer. It is important to know what compels financial behaviors.
The 2015 Survey of Financial Advisors indicates that the role of providers is changing. “Advisors will need to reconsider their value proposition” as consumers’ needs change.
What is your value proposition? Is it evolving?
Consider it, and determine how to remove the financial misconceptions, psychological barriers, and fears that keep your members from a financially secure future.