The Action Paradox: Financial Pros Fight Inertia with Action
Advisors say top financial blunder by clients is overspending, undersaving
July 22, 2013 (Des Moines, Iowa) — Human nature, not other financial professionals, is the biggest source of competition advisors face, reveals new research from the Principal Financial Group®. According to the Principal Financial Well-Being IndexSM: Advisors, a nationwide study of 616 financial advisors conducted online by Harris Interactive® in the second quarter of 2013, clients' own fears often prevent them from taking financial action. Yet action is precisely what differentiates the financial winners from the losers, according to The Principal®.
“Financial planning doesn't have to be so hard. The most effective advisors help clients envision their financial future,” said Tim Minard, senior vice president of distribution at The Principal. “Advisors develop plans for individuals and business owners to save for the long term, invest and grow their nest eggs, protect their assets and manage their income during retirement. They help clients reverse the financial lethargy that got them stuck in the first place. Even small actions can result in financial success over time, which is why it’s critical to engage an advisor and start financial conversations early and often.”
The Principal Financial Well-Being Index: Advisors surveyed financial advisors nationwide including independent broker/dealers, wire house and regional brokerage firms, insurance agencies, independent wealth management firms, banks and independent asset management firms. The Index is part of a series of quarterly studies examining the financial well-being of American workers and business owners, and advisor opinions and practice management.
Advisors say clients’ top financial dreams are financial security in retirement (80 percent) and financial security in general (77 percent). Good health (56 percent), travel (42 percent) and living debt free (40 percent) round out the top five financial dreams.
Actions speak louder than words
But getting people to take action is a challenge. “Advisors help people overcome obstacles. They can very quickly turn inertia into opportunity by recommending concrete, simple steps to move forward,” Minard said. Top action steps advisors recommend to clients are:
- Increase retirement savings (77 percent)
- Create a financial plan (73 percent)
- Pay down debt (53 percent)
- Spend less (32 percent)
- See an advisor regularly (22 percent)
- Save enough for an emergency fund (19 percent)
The study shows that on average, most advisors believe clients should save around 17 percent of their pay to have enough income during retirement. Though many of their clients have financial plans, rarely do clients start saving early enough to achieve their financial dreams, they said. In fact, over half of advisors (55 percent) say that no more than one in four of their clients actually begin saving early enough in their career to achieve the recommended level of retirement savings. Overspending and living beyond one’s means (61 percent) are the most common reasons clients veer from their financial plans, the study shows.
Americans with advisors better prepared
According to a prior survey by The Principal, people who work with a financial advisor simply fare better. Americans who work with advisors said:
- They were significantly more prepared for a comfortable retirement (61 percent) compared to workers who do not use an advisor (29 percent)
- They made solid progress toward their long-term financial goals (74 percent)
- They were more financially confident since they began working with an advisor (73 percent)
- They were extremely happy with their current financial well-being than employees who do not see a financial professional (54 percent compared to 29 percent)
Other key findings include
- Clients’ top financial blunders according to advisors are living beyond one’s means (24 percent), not saving enough (15 percent), starting saving too late (9 percent), putting off a financial plan (9 percent), fear (9 percent) and inertia (9 percent). Other blunders included investing too little in retirement, too much debt, not budgeting and not investing.
- Sixty-five percent of advisors say clients most often stretch the truth about living within their means, followed by amount of debt they have (44 percent). Risky financial behaviors, level of disposable income, family problems, health issues and salary are other common areas where clients twist the facts.
- Advisor challenges: Fifty-one percent of financial professionals said dealing with regulatory and compliance issues is the single greatest pain point in their business, followed by economic uncertainty (39 percent) and market volatility (37 percent).
- Financial professionals ranked not having enough time in the day to get their work done, followed by increased regulatory burdens (28 percent and 21 percent, respectively) as the most common anxieties keeping them up at night.
- Overwhelmingly, the most common rewards as financial advisors are giving clients peace of mind (78 percent) and helping clients achieve their financial dreams (77 percent).
- Three in five advisors (59 percent) believe male and female clients are equally likely to follow financial recommendations, but a third (34 percent) believe female clients are more likely to do so.
For more news and insights from The Principal, connect with us on Twitter at http://twitter.com/ThePrincipal.
The survey of advisors was conducted online by Harris Interactive within the United States between April 29 and May 11, 2013, among a nationwide sample of 616 producing advisors, including 200 Group Benefit Advisors, 213 Group Retirement Advisors, and 203 Individual Retail Advisors. These advisors had been working as a broker or financial advisor for at least two years and have a personal income of $75,000 or more. Respondents for this survey were advisors who have agreed to participate in Harris Interactive surveys. Because the sample includes those who agreed to participate in the Harris Interactive panel, no estimates of theoretical sampling error can be calculated. A full methodology is available at www.principal.com/wellbeing.
About the Principal Financial Group
The Principal Financial Group® (The Principal®) is a global investment management leader offering retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500®, the Principal Financial Group has $456.1 billion in assets under management and serves some 19.1 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
About Harris Interactive
Harris Interactiveis one of the world's leading market research firms, leveraging research, technology, and business acumen to transform relevant insight into actionable foresight. Known widely for the Harris Poll® and for pioneering innovative research methodologies, Harris offers proprietary solutions in the areas of market and customer insight, corporate brand and reputation strategy, and marketing, advertising, public relations and communications research. Harris possesses expertise in a wide range of industries including health care, technology, public affairs, energy, telecommunications, financial services, insurance, media, retail, restaurant, and consumer package goods. Additionally, Harris has a portfolio of multi-client offerings that complement our custom solutions while maximizing our client's research investment. Serving clients in more than 196 countries and territories through our North American and European offices, Harris specializes in delivering research solutions that help us – and our clients &ndash stay ahead of what's next. For more information, please visit www.harrisinteractive.com.
- Principal Financial Well Being IndexSM: American Workers (Q2 2013)
- "The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
- As of March 31, 2013.
- Harris Interactive is not an affiliate of any member of the Principal Financial Group.