SCHAUMBURG, Ill., Oct. 11 /PRNewswire/ -- Many experts predict that even after America emerges from its present economic problems a more formidable financial challenge looms just over the horizon as its citizens have fallen behind on saving for retirement. With professional guidance, a generation of future retirees could correct their course before it's too late, but many are not seeking that help. A new study from the Society of Actuaries (SOA) highlights the need for more access to affordable, quality financial advice for non-affluent U.S. consumers, those of moderate or low net worth. While Americans' responsibility for retirement has increased, their financial knowledge has not kept pace. As a result, many workers approaching retirement are realizing they do not have enough retirement savings accumulated and are not equipped to solve this problem. There is a widespread lack of both financial knowledge and formal, long-term financial planning among the middle class. The findings from the SOA study, Barriers to Financial Advice for Non-Affluent Consumers, uncover the top ten barriers to financial advice and helps address the gaps in knowledge.
"Millions of Americans are at risk of entering retirement without the resources necessary to maintain their standard of living and provide financial security for themselves in retirement," said Dan Iannicola, Jr., former U.S. Treasury official and co-author of the study. "While research shows many people do not have the knowledge they need to address this problem, relatively few seek assistance from the professionals best equipped to help them. The SOA study identifies and analyzes the barriers that come between non-affluent consumers and financial advisers. Both groups can use these findings to adjust their approaches to one another so that sound, unbiased financial advice can reach those who need it, when they need it."
The SOA study notes a number of factors contributing to the possibility of an impending retirement savings crisis, including the shift from defined benefit to defined contribution employer retirement plans, the sustained rises in health care costs, increased life expectancy, and the possibility of future reductions in government-provided retirement benefits. These factors, along with the growth and increasing complexity of financial products and services, call for more financial education for consumers.
Yet, as the study reveals, many non-affluent American consumers are neither seeking nor receiving affordable, quality professional financial advice due to the following barriers:
- Many non-affluent consumers lack the basic financial knowledge that is necessary to seek and utilize financial advice.
- There is a widespread misunderstanding of the process and value of financial advice.
- Non-affluent consumers do not tend to trust – and therefore avoid – financial advisers who also sell products due to a perceived conflict of interest.
- Many non-affluent consumers only seek financial advice from informal sources, such as family and friends, because they view these sources as inherently trustworthy.
- Professional financial advisers often do not have the necessary social relationships and community connections to access the non-affluent market.
- There is often a cultural disconnect between financial advisers, who are used to serving wealthy clients, and non-affluent consumers from different cultural backgrounds.
- Strong and pervasive gender norms can reduce the utilization of financial advice by couples.
- Most financial advising firms focus on affluent consumers, since the non-affluent tend to be considered less profitable and require a long-term, high-involvement investment of resources to cultivate business with them.
- The financial advice industry incentivizes its professionals to sell products more than educate consumers.
- Recent turmoil in the financial markets has significantly lowered consumers' confidence and trust in the financial services profession.
"Although Americans' individual responsibilities for their own retirement have increased with the shift from defined benefit to defined contribution plans, their financial knowledge has not kept pace," said Janet Deskins, Fellow of the Society of Actuaries and Senior Vice President at Genworth Financial. "The need for professional, customized financial advice is compelling; the complexity and uniqueness of each person's financial situation and retirement savings challenges requires customized solutions, which in many cases are best delivered by properly credentialed, trained and motivated professionals."
This SOA study is comprised of a review of financial literature and in-depth interviews with experts in the financial adviser field. The study is phase one of a two-phase project by the SOA, with the second study to address strategies for overcoming financial barriers. The study was conducted by Dan Iannicola, Jr. and Jonas Parker, Ph.D. of The Financial Literacy Group on behalf of the SOA. For the full report "Barriers to Financial Advice for Non-Affluent Consumers" please visit http://www.soa.org/files/pdf/research-2010-barriers-consumers.pdf
Actuaries bring a complex future into focus by applying unique insight to risk and opportunity. Known for their comprehensive approach, actuaries enable smart, more confident decisions.
About the Society of Actuaries
The Society of Actuaries is an educational, research and professional organization dedicated to serving the public, its members and its candidates. The SOA's mission is to advance actuarial knowledge and to enhance the ability of actuaries to provide expert advice and relevant solutions for financial, business and societal problems. The SOA's vision is for actuaries to be the leading professionals in the measurement and management of risk. To learn more, visit www.soa.org.
SOURCE Society of Actuaries