Middle-income Americans wing it on financial decisions

Survey shows less than half would consult investment adviser

Sep 18, 2012 @ 3:25 pm

By Mark Schoeff Jr.

Middle-income Americans tend to wing it when making decisions about their money, which has led to expensive financial mistakes, according to a new survey.

About 67% of people with household annual income between $30,000 and $100,000 have made at least one “really bad financial decision,” according to a study released Tuesday by the Consumer Federation of America and Primerica Inc. Those stumbles cost families an average $23,000.

Despite potential financial hazards, less than half those surveyed, or 45%, turn to an investment adviser to help them manage their money.

Another 15% said that they use the Internet and television for investment information, while 17% “wouldn't seek any information or advice, and just make a decision,” according to the report, which was based on responses from 843 of 2,015 adults surveyed by ORC International in July.

Those in the middle class have seen their financial assets dwindle to an average $27,300 in 2010, from $37,000 in 2007. Yet their faltering financial prospects don't make them more attuned to money management.

“They'll spend weeks planning a vacation to Disney World, but when it comes to their financial future, they procrastinate,” John Addison Jr., Primerica's co-chief executive, told reporters at the National Press Club in Washington on Monday.

“The highest obstacle to financial success is procrastination.”

The sponsors of the study are shocked at the willingness of middle-income investors to go it alone.

“A strikingly high percentage of respondents in our survey said they wouldn't consult any information at all in making a decision,” said Stephen Brobeck, executive director of the Consumer Federation of America.

He urges more discipline before taking out unaffordable home mortgages, taking on too much credit card debt or making risky investments.

“Conduct a more careful consumer search when you're purchasing financial products,” Mr. Brobeck said. “It's a complicated and dynamic marketplace.”

Primerica used the survey to pitch itself as a financial Sherpa to those with a modest amount of money to put into the market.

The typical investment account at Primerica is $4,000.

Most of the firm's registered representatives are guiding clients on contributions to individual retirement accounts and mutual fund investments, according to Mr. Addison.

“Main Street, middle-income families are too important to ignore. They're the backbone of our country,” Mr. Addison said.

“There need to be more [financial] representatives who go see these families,” he said.

A major debate is under way about whether advisers at a firm such as Primerica should act in the best interests of their clients.

Primerica's registered reps must adhere to a suitability standard, which requires that investment products be suitable for their clients. Investment advisers must meet the more stringent fiduciary standard.

The Labor Department is expected to re-propose a rule that would expand the definition of “fiduciary” under federal retirement law, while the Securities and Exchange Commission is considering one that would impose fiduciary duty on anyone providing retail investment advice. Both seek to protect investors from conflicted financial advice.

Skeptics warn that flawed rules could raise regulatory and liability costs for registered reps and limit product offerings, potentially pricing middle-income investors out of the advice market.

The Labor Department fiduciary rule would curtail investment advice for IRA holders, Mr. Addison said.

“More retirement savings is better than less retirement savings,” he said. “The more you reduce access for families, the more you hurt Main Street families.”

The nature of Primerica's business keeps it focused on its clients' best interests, Mr. Addison said.

“We're not selling credit default swaps and derivatives to middle-income families,” he said. “We sell bread-and-butter mutual funds.”

The firm also sells life insurance and annuities.

The CFA is a strong proponent of fiduciary duty.

“CFA has a different policy position than Primerica on this issue, but we are not here to discuss those differences today,” Mr. Brobeck told reporters at the press conference.

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