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?

An in-depth study by research firm ORC International took a look at just that question. Instead of considering hypotheticals, however, this report went directly to the source in 2018 by sampling more than 1,000 investors across the U.S.

The analysis was rather unique since it broke results into two groups -- those working with an advisor and those who were going it alone. Highlights of this research, which was sponsored by Voya Financial, included:

  • For those investing and planning on their own, 42% of those surveyed said they didn'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 said they felt at least somewhat prepared when it comes to estimating those types of costs in retirement, while 48% of those respondents who weren't using an advisor didn'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 felt "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 were:

  • Of those working with an advisor, 76% planned to make adjustments to their investments leading up to retirement. That compared to just 35% of individuals who didn'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% said they'd at least started such a discussion.

Another major area of discrepancy this study addressed was how retirement savers were preparing for lifestyle changes once they stop working full-time. Some of these findings included:

  • An admirable 83% of investors working with an advisor said they'd at least thought about how to fill their time in retirement. That compared to 56% of those without an advisor who said they had not considered such needs. 
  • Strikingly, 92% of those surveyed who worked with an advisor said they'd thought about housing in retirement, as opposed to 78% of their peers without an advisor.
  • Saving for housing expenses in retirement and eldercare costs had been addressed by only 26% of those using an advisor. But it was even worse for do-it-yourselfers -- just 9% said they were 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 shows clear benefits of working with an investment pro. In fact, Vanguard has coined the term "advisor's alpha" as a measure of the value added by passive advisors who adhere to the principles of controlling costs, maintaining discipline and tax awareness. The breakdown of the advisor alpha set forth in studies conducted by the fund provider in 2014 and 2018 are shown below. 

By providing more proof of how much value advisors are adding for their clients, this ORC International/Voya study served to again point to an important red flag raised by other researchers: 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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