BOSTON — Brokerage firms and independent advisers lead the pack in financial planning for consumers, according to a new wealth management study from Aite Group.
Aite surveyed 505 people in the United States who were either within five years of retirement (pre-retirees) or within five years of having been retired on their confidence with their retirement savings and the current level and future needs for financial planning. Of respondents, 251 were pre-retirees and 254 had retired.
Of all financial plans among the survey population, 61% were established by a brokerage firm or independent adviser. Rounding out the list were private banks at 13%, retail banks at 11%, insurance companies at 8%, trust companies at 5% and law firms at 1%.
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"It's kind of a herd mentality," said Alois Pirker, senior analyst with Aite and author of the report that found brokerage firms consumers' top choice. "They've always done [financial planning] and have claims to do it well. Consumers know this and that's why they go."
The report indicated that while independent advisers now lag behind brokerage firms as consumers' preferred financial planners, that may soon change.
"Independent advisers have made huge inroads and are chipping away at the lead of brokerage firms," Pirker said. "They are taking more time to know their clients and doing more extensive planning. Some are taking a more holistic approach–something brokerage firms have not been good at, which has led to market share decline."
For credit unions and other financial institutions, the issue of credibility is sometimes the barrier that keeps consumers at bay for financial planning, Pirker said.
"Everybody else has had trouble convincing consumers that they can do [financial planning]," Pirker explained. "The problem is often retirement savings and income has been linked to investing. So, insurance companies are doing planning from an insurance angle as are investment companies and banks."
The outlook for credit unions is not as grim as it appears, Pirker emphasized. Smaller financial institutions are stepping up to make their presence felt following the lead of independent advisers by forming holistic relationships with clients rather than seeing them as quota builders. Traditionally, credit unions are able to build long-term loyalty with members creating an opportunity to build within the financial planning space, Pirker said.
Meanwhile, the report's data found that 34% of respondents said they have a financial portfolio of more than $250,000 and 45% do not think that their retirement savings will cover all the costs they will face during retirement. Of the 310 consumers in the study with a financial plan, 51% mentioned retirement savings planning as the primary reason motivating them to establish a financial plan, while retirement income planning, such as projecting cash flow requirements for the various phases of retirement, was mentioned by 18%. Lifetime events like marriage, divorce or the birth of a child came in third at 17%.
Of respondents that did not have a financial plan, a quarter of them never thought about establishing one, while one-fifth did not think a financial plan was necessary. Eighteen percent said they did not have a financial plan due to the costs involved.
The survey also found that while all the consumers in the survey have either retired within the last five years or are planning to retire within the next five, 40% of both groups only started to plan for retirement during the last five years. Pirker said retirement seems to sneak up on people.
"Most consumers get their feet wet," he said, referring to people that dabble in retirement planning intermittently. "Even though the retirement push is there, you don't realize it's approaching."
The current state of the markets and other economic signs "have been on the wall for a long time," which has stalled planning for some consumers, Pirker said.
Starting early–an oft repeated mantra among financial planners–really works.
"You can not start early enough. It seems the generations heading to financial planning are doing it more frequently and recognizing that they will run into trouble if they don't plan."
With that said, Pirker said a future survey will target those who are 10 to 15 years away from retirement to assess where they stand financially.
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