See Forest

Too Few Investors Taking 'Big Picture' View: Study

See Forest

How big of a difference can an objective set of professional eyes add to an investor's overall financial success outside of managing a portfolio?

A new study takes a look at just that question. Instead of considering hypotheticals, however, this report goes directly to the source by sampling more than 1,000 investors across the U.S.

The research firm conducting such a survey, ORC International, broke results into two groups -- those working with an advisor and those who are going it alone. Highlights of this research, which was sponsored by Voya Financial, include:

  • For those investing and planning on their own, 42% of those surveyed say they don't feel prepared "at all" to make decisions about their monthly income in retirement. By contrast, 94% of investors working with a planning pro expressed confidence they were at least somewhat prepared to handle such household cash inflow and outflow issues.

  • In terms of health care planning, 80% of individuals with an advisor say they feel at least somewhat prepared when it comes to estimating those types of costs in retirement, while 48% of those respondents who aren't using an advisor don't feel prepared "at all."

  • When it comes to decisions about withdrawing money from retirement plans and similar accounts in ways that avoid financial penalties, 57% of people who work with an advisor feel "very" prepared. At the same time, just 22% of those without a second set of eyes expressed a similar level of confidence.

The study also considered portfolio-related matters as well. Again, researchers found a wide gap between those working with an advisor and those trying to manage investments on their own. Two of the more eye raising results are:

  • Of those working with an advisor, 76% plan to make adjustments to their investments leading up to retirement. That compared to just 35% of individuals who don’t tap into the expertise of an investment pro. 
  • In terms of formulating some sort of plan to adjust their portfolios as they age in order to protect their investments and adjust to changing life events, only 18% reported progress. Among those working with an advisor, 40% say they've at least started such a discussion.

Another major area of discrepancy Voya's study addresses is how retirement savers are preparing for lifestyle changes once they stop working full-time. This new survey discovers:

  • An admirable 83% of investors working with an advisor have thought about how they will fill their time in retirement. That compared to 56% of those without an advisor who haven't considered such needs. 
  • Strikingly, 92% of those surveyed who work with an advisor say they've thought about housing in retirement, as opposed to 78% of their peers without an advisor.
  • Saving for housing expenses in retirement and eldercare costs have been addressed by only 26% of those using an advisor. But it's even worse for those do-it-yourselfers -- just 9% are considering such issues. 

But these are just the latest findings. Advances in portfolio management and behavioral science have led to a wealth of independent research, the sum of which show clear benefits of working with an investment pro. (Vanguard, for one, has estimated that such advisor "alpha" can boost returns by 3% a year.) In fact, IFA has compiled a chart listing studies that've looked into this subject (see below) in order to help quantify the benefits of working with a passive advisor as opposed to not working with one.


By providing more proof of how much value advisors are adding for their clients, this latest study raises an important red flag: single-minded investors focused solely on their portfolios and not willing to take a 'big picture' view of their financial well-being are in danger of missing out.

To us, it's more evidence that all of life's planning issues -- from dealing with rising health care and insurance costs to managing changing lifestyles over time -- need to be considered in order to secure your financial future.  

 


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