Middle-income Americans wing it on financial decisions

Middle-income Americans tend to roll the dice when making decisions about their money, leading to expensive financial mistakes, ac-cording 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 last Tuesday by the Consumer Federation of America and Primerica Inc. Those stumbles cost families an average $23,000.

Despite the hazards, less than half of those surveyed (45%) have turned 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.

PROCRASTINATION

“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 last Tuesday.

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.

Urging discipline, he warned against taking out 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.

Primerica used the survey to pitch itself as a financial guide to those with a modest amount of money to put into the market. A typical Primerica account holds $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,” Mr. Addison said.

A major debate is under way about whether advisers at a firm such as Primerica should be required to limit their advice to that which fits into a fiduciary standard — always putting the client's best interests first.

Primerica's registered reps must adhere to a suitability standard, which allows sales of products from which the adviser profits as long as they are suitable for the clients. Investment advisers must meet the more stringent fiduciary standard.

The Labor Department is ex-pected to re-propose a rule that would expand the number of professionals governed by a fiduciary duty 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 such rules could raise regulatory and liability costs for brokers and limit product choices, making advice unaffordable for middle-income investors.

The DOL fiduciary rule would make investment advice unavailable to IRA holders, Mr. Addison said.

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's stance on fiduciary duty did not affect their joint project.

“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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