Advisers Need to Meet Client Inertia Head On

Clients’ own fears often prevent them from taking financial action—yet action is precisely what differentiates the financial winners from the losers.

Advisers identified the top financial blunders made by their clients as overspending and under-saving, according to a study, The Principal Financial Well-Being Index: Advisors.

Advisers are able to get their clients to change behaviors, said Tim Minard, senior vice president of distribution at The Principal, but it will take time. People don’t wind up in a financial hole from a lack of savings, overspending or debt overnight, and the problems won’t be fixed overnight. “But are they starting to develop an awakening in their clients to change behavior? I think that is happening,” Minard told PLANADVISER.

One of The Principal’s goals in the study was trying to get into the mind of the adviser, Minard said. “What are some of their hurdles in providing financial well-being to their clients?” A surprising finding of the study, he said, was that the No. 1 challenge advisers must cope with is not competing with other advisers or a lack of prospects, but participant inertia. Partly because of fear, partly because of not knowing what to do, he said, investors often “lock up and don’t do anything. It’s human nature.”

Minardi compared advisers to doctors, and pointed out that when a doctor asks questions about working out or diet, people don’t always give the precise truth. “If your financial adviser asks if you live within your means and save enough, that’s an equally challenging question,” he said. Few people are willing to admit to carrying too much debt, for example.

But it is not just clients who exhibit inertia. Minard points out another surprise result. “We asked a different question this year, and found out that only 30% of advisers have a succession plan,” he said. “Of those, just 14% had a valuation done of their business.”

“Financial planning doesn’t have to be so hard. The most effective advisers help clients envision their financial future,” Minard said. “Advisers develop plans for individuals and business owners to save for the long term, invest and grow their nest eggs, protect their assets and manage their income during retirement. They help clients reverse the financial lethargy that got them stuck in the first place. Even small actions can result in financial success over time, which is why it’s critical to engage an adviser and start financial conversations early and often.” A previous study by The Principal found that people who work with an adviser report feeling higher levels of confidence and satisfaction. (See “Financial Professionals Increase Retirement Confidence.”)

Top Five Goals

Advisers say clients’ top financial dreams are financial security in retirement (80%) and financial security in general (77%). Good health (56%), travel (42%) and living debt free (40%) round out the top five financial dreams.

But getting people to take action is a challenge. “Advisers help people overcome obstacles. They can very quickly turn inertia into opportunity by recommending concrete, simple steps to move forward,” Minard said. Top action steps advisers recommend to clients are:

  • Increase retirement savings (77%)
  • Create a financial plan (73%)
  • Pay down debt (53%)
  • Spend less (32%)
  • See an adviser regularly (22%)
  • Save enough for an emergency fund (19%)

On average, most advisers believe clients should save around 17% of their pay to have enough income during retirement. Though many of their clients have financial plans, rarely do clients start saving early enough to achieve their financial dreams, they said. In fact, over half of advisers (55%) say that no more than one in four of their clients actually begin saving early enough in their career to achieve the recommended level of retirement savings. Overspending and living beyond one’s means (61%) are the most common reasons clients veer from their financial plans, the study shows.

The Principal Financial Well-Being Index: Advisors survey was conducted online in the U.S. by Harris Interactive between April 29 and May 11, among 616 financial advisers. The study is used to identify and track changes in the financial adviser community. A full methodology is available at