The challenge for financial advisors is how to sell Americans on services they probably don’t realize they need.
And this is why roughly 79 percent of Americans have never hired an advisor, according to a new study commissioned by the Million Dollar Round Table.
“People don’t know what they don’t know and our job is to help them uncover the weaknesses in a financial plan,” said Brian Heckert, a longtime Illinois-based advisor and past president of MDRT.
Of survey respondents who have not worked with a financial advisor, 38 percent cited a belief that they are “capable of managing my own finances.” But can be a foolish gambit, said Heckert, owner of Financial Solutions Midwest in Nashville, Ill.
He called it contribution-based financial planning as opposed to goals-based financial planning.
“A person who doesn’t use an advisor tends to be somebody who says ‘I can afford about $1,000 a month for everything,’” Heckert explained. “That’s what my budget will afford. So they try and work in their 401(k) contribution or their IRA contribution.”
Meanwhile, somebody who works with a financial professional and a goals-based system uses tools like broader goals, budgeting and tax planning to stretch those dollars.
“They may be able to afford $1,500 a month,” Heckert said.
The difficulty reaching large numbers of Americans who never solicit a financial advisor is not new. Finding new strategies is the key to unlocking this market, Heckert said.
Many respondents indicated feeling intimidated in some way when asked why they did not consider an advisor. Forty-four percent said they did not think they had enough money, while 36 percent said an advisor would “cost too much.”
Basic changes in how Americans communicate is also to blame for the disconnect between advisors and the 79 percent, Heckert said.
“With Do Not Call lists, with no home phones, with very few people using traditional means that people in my generation of the business started with, I think it’s proof that advisors are having a tougher time getting through to the people that need the advice,” he said.
One way to reach more people is to get out of the office. Work-site financial education programs are a great way to meet potential clients on their turf, Heckert said, where they will likely be more at ease.
Studies show that employees who have a 401(k), or other pension savings program, are happier.
“That’s where I’d like to see more of an emphasis from our industry, is to work in conjunction with an employer,” Heckert said.
Still, while the benefits are popular, 29 percent of survey respondents said they do not participate in their workplace 401(k).
“What I find is when people don’t understand the options and they have to make their own investment choices, their option is to take their money and save it on their own, rather than put in something they do not understand,” Heckert said. “The more education, the more the participation goes up.”
The survey contained good news as well, in particular, validation from respondents who have worked with an advisor.
Across the board, advisor-familiar respondents indicated a far greater confidence level with aspects such as life insurance and Roth IRAs, to more complex protection products such as long-term care insurance and annuities.
That is important, Heckert said.
“The role of a financial professional is extremely important and this survey reinforces that the people who use a financial professional seem to have a lot better grasp of it,” he added. “Unfortunately, we’re just not reaching enough of them.”
Of the Americans who have never hired an advisor, less than half (46 percent) have a retirement plan or emergency fund, only 19 percent have a long-term financial plan for the future and 46 percent have life insurance.
This is in contrast to the 21 percent who have hired a financial planner, in which 77 percent have a retirement plan or emergency fund, half have a long-term financial plan for the future and 63 percent have life insurance.
The survey represents opportunity, said Heckert, noting that his 23-year-old son is about to enter the business.
“It’s exciting when I look at bringing in my son that 79 percent of the people haven’t hired financial professionals,” he said. “It’s a huge, huge opportunity for our industry to double down on its efforts to try and find creative ways to find those people and help them.”
This survey was conducted online in early February by Harris Poll among 2,202 U.S. adults ages 18 and older. View MDRT’s full study results to learn why consumer confidence in financial planning is key.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].
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