The Primary Reason People Use Financial Advisors Is…
Is there good reason to use a financial advisor?
The primary reason people use financial advisors is probably no surprise: RETIREMENT.
A survey from Wells Fargo found that 71% of investors sought financial advice for retirement. Other big life events also prompt Americans to seek out financial planners — 64% seek out an advisor during a divorce and 52% seek out a financial planner during the death of a close family member.
Is turning to a retirement financial advisor a good idea? Turns out it might be, according to the Insured Retirement institute (IRI), which found that people who use financial advisors are more confident.
In fact, the percentage of baby boomers working with a financial advisor who are highly confident in having sufficient savings to live comfortably throughout their retirement years is more than double those who are planning for retirement on their own, the IRI report finds.
Here are the top 3 reasons why people consult a financial advisor:
1. The Primary Reason People Use Financial Advisors Is: Financial Planning for Retirement
Financial advisors agree that retirement is a common milestone that prompts office visits from older Americans from a variety of backgrounds. And there are a few important topics on which most people want help, including:
- Social Security: “When thinking about retirement planning, optimizing Social Security is a really difficult challenge because of the level of complexity,” says Spencer Hall, managing partner with Retirement Planning Services, LLC in Knoxville, Tenn. “I’ve talked to doctors, lawyers, nuclear engineers — but even they don’t understand Social Security and all the options. And the complexity is not decreasing, it’s increasing.”
- Investments: Meeting with a financial advisor can also help ensure your retirement investments are on the right track, and can even help you meet your desired retirement age, says Kerry Soudan, financial representative with TREW Financial & Benefits Group, Inc.
- How Much to Save: “Many people fall into the trap of convincing themselves they don’t make enough to save, but for most people this is simply not true,” Soudan says. “Controlling your spending is critical to saving for retirement. The best way to reduce spending is to understand where and how you spend your money.”
- IRAs and 401ks: Employment-based retirement plans continue to be important sources of expected income in retirement for the baby boomer generation, as does Social Security and individual retirement accounts, or IRAs, data show.
- Motivation and Overall Planning: Working with a financial advisor has a positive influence on retirement planning behaviors, including increased usage of tax-advantaged savings vehicles, improved asset allocation, and greater portfolio diversification, IRI found.
It’s never too late to say “I don’t,” data show — about 40% to 50% of married couples in the United States divorce, according to the American Psychological Association.
And with this life-changing event comes a huge financial burden for most, Hall says.
“Probably in four out of five couples, one person does the bulk of the budgeting and paying of bills,” Hall says. “The other person may be involved in it, but more on a peripheral level. For a person who feels like they’re in the dark, getting up to speed on everything can be very overwhelming.”
3. Death of a Spouse
Although the grievances are different, there are some similarities between those who seek a financial advisor after a divorce and those who reach out after the death of a spouse, Hall says.
“It can be debilitating if the spouse has never taken care of finances before,” Hall says.
But those who plan ahead, and have an established relationship with a financial advisor, can avoid the stress that accompanies tackling financial planning for the first time.
“I sat down with a gentleman whose wife had just passed away, he handed me a stack of paperwork in tears and said, ‘I have no idea what to do with any of this,’” Hall says.
While the paperwork wasn’t complex from a financial advisor’s standpoint, the grief and amount of paperwork involved in one’s estate can be overwhelming for many.
“Being able to walk with someone through that process and say ‘OK, don’t worry about 80% of this stuff,’ and ‘Here are the documents you need,’” is the value that’s delivered when meeting with a financial advisor, Hall says.
Navigating Life’s Big and Small Changes
Financial planners offer more than advice regarding where to invest or what stocks are performing best, they prove to be real assets when navigating through all of life’s changes, big and small.
“When you work with someone over the years, you know this person and they have your best interest at heart,” Hall says.
In addition, while positive life changes, such as the birth of a child, might inspire a trip to a financial advisor, it’s often more negative happenings that prompt a person’s first visit.
“Death can come out of the blue,” Hall says. “In unfortunate situations, people will not have joint access to an account and they start panicking. And then you add grief to that.”
Overall, IRI found that better savings behaviors, acquired through the client-advisor relationship, contributed to greater assets for those working with financial advisors.
“A trusted financial advisor can help you select appropriate investments, decide when you are ready to retire and offer insights you might miss on your own,” Soudan says. “A financial planner can also help you budget, set goals and invest.”