In a recent Hearts & Wallets research report, Americans reported that their top five biggest financial-advice gaps are: handling market volatility emotionally, choosing appropriate investments, estimating required minimum withdrawals (RMDs), making buy/sell decisions on investments, and estate planning.
In the report, Pain Points & Actions: Using the Biggest Advice Gaps to Jump Start Consumer Conversations, Hearts & Wallets defines an advice gap as an unmet need for advice on a specific task when a household finds a task difficult and has not sought help.
Biggest Advice Gaps By Assets
In terms of assets, the biggest advice gaps are estate planning, managing finances of aging loved ones, and deciding whether to do Roth conversions, when households with $5 million and more are included, according to the report.
By life stage, estimating required minimum withdrawals (RMDs) is the only unmet advice need that appears as a top 5 advice gap across all working “accumulator” life stages (ages 21 to 64). The top advice gap for pre-retirees is developing a strategy to withdraw income from multiple accounts. Retirees and fully employed seniors have the lowest percentage of advice gaps of all life stages.
It is interesting to note that estate planning is an unmet advice need across all asset levels and most life stages--not just for older, wealthier households.
“The finding is somewhat surprising, as many would think it mainly a priority for older, wealthier households,” noted Laura Varas, CEO and founder of Hearts &Wallets. “We know from our research that millennials are twice as likely as baby boomers to seek help on multiple tasks. In 2021, 25% of millennials say they had an advice gap on estate planning, in comparison to 21% of Gen X, and baby boomers (who range from 16% for those who plan to keep working to 11% for those who are already retired).”
Younger Consumers Seeking Help
Millennials and Gen X consumers who said that COVID-19 changed their attitudes to saving and investing are especially likely to seek help on multiple tasks, including estate planning, added Varas. “Write-in verbatims on our annual survey of 5,794 respondents indicate that for some of these COVID-changed individuals, the shock of seeing so many people out of work underscored the importance of 'being prepared.'”
The pandemic reinforced how life, work and financial circumstances can change in an instant, Varas said. Some expressed fears about markets, and the world, being so uncertain. Some comments included observations that the pandemic demonstrated that life is “fragile,” so it makes sense to enjoy today.
“That sense of fragility,” added Varas, “may prompt younger households to think about estate planning, especially in relationship to who will care for their children if something should happen to them, and potentially things like life insurance, although our research didn't break this out.” In addition, most younger households have less money, Varas said. The 1% of U.S. households who are older (ages 55 to 74) and wealthy ($5 million-plus) control 32% of all U.S. retail investable assets.
More U.S. households reported seeking help for multiple financial tasks, with growth being driven by households with $100,000 to under $500,000 in assets, according to the survey. Nationally, 3 in 10 households sought help on 3-plus tasks in 2021, a year-over-year increase of 4 percentage points and up 8 percentage points since 2014.
In comparison to older generations, Millennials and Gen X are more likely to seek help for multiple financial tasks, seeking help for 3-plus tasks, and often, as many as 7-plus. Millennials are twice as likely as Baby Boomers to seek help on multiple tasks. Millennials and Gen X consumers who said that COVID-19 changed their attitudes to saving and investing are especially likely to seek help on multiple tasks.
Not All Are Looking For Help
Three in 10 U.S. households said that seven or more financial tasks are very difficult (ranked 8 to 10 on a 10-point scale). However, they did not seek help for a single task.
This lack of action is puzzling, especially when you consider that three in 10 households said that they find seven or more financial tasks very difficult (ranked 8 to 10 on a 10-point scale), but did not seek help for a single task, Varas pointed out.
“We believe several factors might be at work,” she added. “Current financial language may not resonate, especially with younger consumers. Research we conducted in 2020 found most Americans (81%) lack financial fluency, choosing the best answer for 4 or fewer of 7 key investment selection terms that were presented to participants in a national survey of nearly 6,000 U.S. households.”
Pricing might also be a barrier, added Varas. Firms should consider matching pricing to market size. For example, if the opportunity to help on a task is big in terms of households but not in assets, firms should use subscription or flat fees for any programs that emphasize that task. If the need is bigger in terms of assets, they should use traditional basis point pricing.
“We know consumers who experience advice are twice as likely to see value in paying for advice,” Varas said. “So, provide different ways for more consumers to have first-hand experiences with advice to help them understand how professional guidance can make tough decisions easier. Educate consumers on the value of advice and the array of advice option. We think one way to break through the inertia and clutter is to focus on help for one task to start a conversation with the consumer.”
The research report draws upon the Hearts & Wallets Investor Quantitative Database with over 100 million data points on consumer buying patterns from 65,000 U.S. households. The latest survey wave was fielded in September 2021 and includes 5,794 participants.
Ayo Mseka has more than 30 years of experience reporting on the financial-services industry. She formerly served as Editor-In-Chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]