On Retirement

Older investors use both financial advisers and online advice

Clients want help beyond classic investment services

Nov 30, 2016 @ 1:10 pm

By Mary Beth Franklin

Affluent older investors have increased their use of both online resources and paid financial professionals in the past year because they don't believe a single source can resolve all their questions, new research reveals.

As more sources of information and advice become easier to use, consumers are asking questions and becoming choosier about which services they are willing to pay for.

“Older investors have a growing appetite for both digital and live advice,” said Laura Varas, founder and CEO of Hearts & Wallets, a source for retail investor data and insights.

“Blending behavior spikes for emotionally charged, high-impact decisions like optimizing Social Security when no one source provides confidence,” Ms. Varas said in releasing the latest insights gleaned from the firm's study “Explore Pre/Post-Retirees 2016: Digital Habits Revealed.”

The study focuses on affluent consumers ages 53 to 74 with investible assets of $500,000 to $5 million who are most likely to blend online resources and paid financial professionals. This market represents 4.5 million households with $8.5 trillion in investible assets.

The Hearts & Wallets research shows one in four older affluent investors use both digital resources and a paid financial professional. Digital use jumped 8 percentage points in one year and is now being used by about half of those ages 53 to 64, up from 41% in 2015. Of this late career age group, 5% say digital is their primary source, making them equally likely as younger groups to rely so heavily on digital.

(More: New robo-adviser geared to retirees)

There is also a growing preference for flat fees for specific financial services instead of a percentage of assets under management — a trend that may become harder for the financial services industry to ignore.

“The real value is no longer investment selections,” Ms. Varas said. “When consumers choose to pay for help, they are buying the emotional benefits, such as peace of mind and confidence in broad and deep expertise that comes from services, not investment alpha.”

Separately, the Spectrem Group asked investors to explain how they rate and judge their advisers. The findings were reported in the study “Advisor Relationships and Changing Advice Requirements.”

“The insights in the study can impact the way an advisory firm approaches and attends to clients,'' said Spectrem President George Walper. “An adviser's investment performance in relation to the overall market is important, but there are so many other factors investors examine when they choose a new adviser or decide whether to stay with their current adviser.”

Financial losses are not a deal breaker when it comes to the investor/adviser relationship. Only 30% of participants in the Spectrem Group study said they would leave an adviser for losses over the span of two years and only 27% said they would leave an adviser for losses over a five-year span. Investors are more likely to leave an adviser because the adviser concentrates only on investments and does not consider the investor's overall financial situation, according to the study.

“If there is ever a time for advisers to pivot and redefine themselves, it is now,” said Phil Lubinski, founding partner at First Financial Strategies. “Moving from asset manager to plan manager is critical to survive as the demographics move from saving for retirement to spending in retirement.”

“Survey after survey has shown that retirees want advice, not money management from their advisers,” said Mr. Lubinski, who recently developed a software program in conjunction with 3D Asset Management to help advisers create, implement and monitor retirement income plans. “Retirees want to know someone can guide them through their retirement and be there for their spouses and heirs,” he said.

(More: Advisers plan to spend more for compliance and tech in 2017)

Jack Sharry, executive vice president of strategic development for LifeYield, a firm that creates software for financial advisers, agrees. Holistic financial planning is not only in the client's best interest, he said, it can also help advisers aggregate client assets and deliver the type of premium service that justifies the rollover under the new Department of Labor fiduciary rules and best-interest contract exemption.

“By combining a comprehensive goals-based wealth management approach utilizing readily available financial technology tools, financial advisers are now in a position to improve investor outcomes — as well as their own — as they ensure comply with new DOL rules,” Mr. Sharry said.

(Questions about new Social Security rules? Find the answers in my new ebook.)

Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.


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