Whitepaper Claims Emotional Barriers Blocking Pursuit of Advice

A new white paper assets that emotional responses are keeping those in and near retirement from accessing professional investment help.  

According to “Understanding the Accidental Investor: Baby Boomers on Retirement”, a whitepaper by advice provider and registered investment advisory firm Financial Engines, those retirement investors are uncertain about the future, fearful of poverty, not confident in their investing abilities, and distrustful of unscrupulous financial services and insurance firms. 

Regardless of the primary emotion, the white paper – based on over 300 interviews and surveys that Financial Engines conducted between 2008 and 2011 – reported that these emotions frequently created barriers that prevented participants from accessing professional help. Many participants that expressed those emotions simply avoided thinking about retirement altogether.  Participants that made statements that reflected a fear of poverty frequently engaged in what Financial Engines termed “magical thinking” – telling themselves that everything would work out in the end.

Finally, those that were distrustful of financial services or unconfident about finances frequently turned to family and friends for advice, regardless of their qualifications or experience. 

Future “Tense?”

More than half of participants interviewed expressed some form of uncertainty in what the future may bring;

Nearly half had a fear of poverty in retirement;

Nearly half were distrustful of the motivations or qualifications of financial services and insurance firms; and

More than a third of near-retirees and retirees said that they did not feel confident or knowledgeable when it came to making important financial decisions. 

In addition to highlighting the emotions and corresponding behaviors of near-retirees and retirees, Financial Engines identified five common needs that, if met, could potentially help participants overcome these strong emotional barriers. Those needs include:

Help from an Adviser. Many participants said that they wanted to work with a financial professional they could trust to help them create a plan and decide on the appropriate course of action. At the same time many said that they found it difficult to know who to trust with their life savings, according to the report.

Sponsor Evaluation. According to Financial Engines’ white paper, participants said that having their employer select and monitor independent retirement income providers made them more likely to accept professional retirement help.

Fee Transparency. Finally, many participants demanded clear and easily understood fees. They said that they would not act unless they fully understood the fees associated with a given product or service.

Flexibility. Given the uncertainty of retirement, participants expressed a need to have flexibility and control over their retirement investments. According to the white paper, participants had a high reluctance to be locked into an investment vehicle—especially early in retirement when uncertainties are at their highest.

Safety. Due to fear of significant losses right before or in retirement, many participants wanted investments that lowered investment risk or that could provide a steady and reliable source of income over time, and potentially for life. Many participants desired both, according to the report, and many of the participants also wanted flexibility.

Copies of the “Understanding the Accidental Investor: Baby Boomers on Retirement” white paper are available for download free of charge at http://www.financialengines.com.