Financial Advice Not Reaching Americans, Deloitte Says

WASHINGTON – One of the reasons Americans are not saving enough for retirement is that financial services providers and their representatives are not engaging them, according to a new study by Deloitte.

Underserved Americans include a “significant” segment with substantial assets to invest, and that the financial services industry needs to respond to what is going on by “devising new ways of delivering appropriate retirement advice in a transparent, objective fashion and at an affordable cost to a wider range of clients,” the report said.

At the same time, trust in financial institutions has improved since Deloitte took its last survey in 2012. The study said one possible reason for this is that investment returns have improved. The 2012 study identified a lack of trust in the financial services industry as another impediment to individuals’ lack of engagement with financial services firms on retirement planning. “In fact, trust in all types of institutions and intermediaries was quite low in that study,” Deloitte said.

Deloitte said that in the two years that have since passed, “it appears that trust in financial institutions and financial professionals has gone up, possibly as a result of strong growth in investment returns over the past couple of years.”

However, the perceived reputation of the industry as a whole is still “relatively poor,” the study found, with fewer than a third of consumers in the current survey felt that financial institutions in general were highly trustworthy, while only a third of respondents felt that way about financial professionals overall.

“Although the latter response is significantly higher than the 15 percent figure of two years ago, these results strongly suggest that there is considerable room for improvement on the trust factor,” the report said.

Deloitte contacted a number of financial advisors while working on the study, and said 74 percent of those surveyed also felt that the level of client trust in them has gone up over the last five years.

“This is certainly a positive sign, but once again, one has to wonder to what extent this view is supported by the more positive investment climate rather than any real change in the way advisors interact with their customers,” the authors of the study said.

One advisor who was contacted said, “Trust has gone up, but so has the market. We have a long way to go in the transparency department.”

Likewise, the study found that more than 80 percent of surveyed advisors also believe that their clients have a great deal of trust in them to “act in their best interests.”

The study authors said that, “This is a highly relevant finding at a time when there is intense debate on whether the federal government should impose a fiduciary standard on those providing retirement advice.”

The latest survey found that consumers show a relatively high level of trust in workplace retirement plans.

“Indeed, such plans were rated the second-most trusted source for financial information, ahead of an individual’s primary financial institution and behind only his or her primary financial advisor,” the study said.

The study found that a key barrier to the ability of individuals to balance the long-term need to retire with more immediate financial priorities. The study said that a large segment of the consumers Deloitte surveyed, especially younger respondents, say that they have too many other immediate financial needs to “commit any significant savings” toward securing their retirement. “The younger the respondent, the more likely this conflict of priorities is to arise,” the authors of the study found.

The study said that, as it found in the 2012 study, “Americans are in fact burdened with too many other commitments — student debt, health care expenses, college savings for their children, and mortgage payments — to be able to sock away enough money for their retirement.”

The authors also noted, “there is, of course, no lack of advice on what individuals ‘should’ do. But, the fact that these recommendations are falling short should be disappointing to both policymakers and financial services firms.”

The study said that it contacted advisors on how significant each of the barriers was in preventing people from preparing for a secure retirement, and that, in response, those financial advisors contacted “were almost unanimous” in suggesting that consumers do indeed face significant challenges getting started and staying on track with retirement planning.

In particular, the authors said, the advisors said they felt that a lack of holistic planning, lack of familiarity with retirement products, and the do-it-yourself mentality were the most significant barriers.” Poor communication and trust were also seen as quite significant, the authors of the Deloitte study said.

Asked how the authors defined holistic, Daniel Rosshirt, a principal at Deloitte and one of the report’s authors, said that, “In this context, ‘holistic’ means looking at someone’s entire financial situation and/or needs, not just at one aspect like retirement savings.”

Rosshirt said that an example of this would be a new entrant in the workforce who has graduated with student loans. “We feel it is important to understand that paying these loans is a current financial requirement that might impact how much that person can save – in this case, an advisor should advise on the tradeoffs between paying off a loan or putting money into a 401k, which might be a better investment.”

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].

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InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].