In light of recent financial services scandals stealing headlines, a study by digital wealth adviser Personal Capital finds that most Americans lack confidence in financial advisers. According to the survey, 70% of respondents said that recent events in the industry have made them question the trustworthiness of financial services professionals. A third believe these practitioners are likely to take advantage of them. Of the 54% of Americans who don’t work with financial advisers, 45% say the indecision is due to a lack of trust.
This report comes ahead of the Department of Labor’s (DOL)’s recent announcement that its Fiduciary Rule, which will raise the standards for advisers working with employer-sponsored retirement plans and even individual retirement accounts (IRAs), will begin to undergo implementation on June 9.
“Too many traditional players in this industry are prioritizing their products, commissions and fees before the client’s best interests, and that is putting consumers’ hard-earned savings and retirement security at risk,” said Personal Capital CEO Jay Shah. “Typically, this is not the customer’s fault, as many advisory firms bury fees in fine print and jargon that is difficult to understand. We encourage all firms to meet a higher standard when it comes to offering objective, personalized financial advice in a more transparent manner, so that we can empower Americans to better manage their financial lives.”
However, the study also found several people are still in the dark about what a financial adviser actually does and how their money is invested. Almost half (46%) mistakenly believe that all financial advisers are required by law to act in their clients’ best interests. Even more troublesome, 32% believe higher fees spell higher returns. However, a recent study by independent research firm Morningstar indicated that low-cost mutual funds generally outperformed their more expensive peers.
Furthermore, twenty-one percent of respondents with at least one investment account, who know they pay fees, don’t actually know how much they are charged. Twenty-eight percent of investors say they don’t pay attention to their investments’ fees – a figure that jumps to 47% for those ages 18 to 34.
These findings stress a need among the industry to educate investors about the basics of investing and professional financial advice in simple language. Still,the study shows several advisers are also raising confidence among their clients. The survey found 89% of Americans who worked with financial advisers were confident their advisers would act in their best interests.
Personal Capital commissioned this survey conducted online by Harris Poll in March 2017 among more than 2,000 U.S. adults. The 2017 Financial Trust Report can be accessed at PersonalCapital.com.