Many Affluent Investors Unaware of How Tax Changes Could Hurt Them

Advisors can proactively educate clients on annuities, life insurance, 401(k)’s

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Affluent investors’ understanding of tax-advantaged investments, like annuities, life insurance and 401(k)'s, varies among demographic groups, according to a new poll.

Nationwide Financial reported Tuesday that the results of its recent online survey of 751 mass affluent investors, conducted by Harris Interactive, pointed to an opportunity for advisors to educate clients on the implications of new taxes.

“Our survey suggests that, while some may be very receptive to considering portfolio adjustments, others may need a little more proactive education from their advisor,” Eric Henderson, senior vice president of life insurance and annuities for Nationwide Financial, said in a statement.

The survey showed that women were less likely than men to expect a significant decrease in household income or asset value as a result of tax code changes. Only one in 20 women had met with a financial advisor to talk about how new taxes could affect their portfolio.

Fifty-two percent of female survey respondents said they were somewhat or very concerned that changes to the tax code would negatively affect their portfolio compared with 69% of male respondents who felt that way.

Women expressed less confidence than men that they completely understood the tax advantages of annuities, life insurance or 401(k) plans.

“Time will tell if the comparative optimism of female survey respondents is warranted,” Henderson said. “In the meantime, it’s critical for female investors and their advisors to discuss new taxes.”

He noted that for most married couples, the wife was likelier to outlive her income, making it is important for both spouses to be active in managing their portfolio.

“The lack of knowledge professed by women respondents may be attributed to what appears to be an underutilization of the financial advisor relationship,” Henderson said.  “However, our survey data suggests that women may be more receptive than men to learning more about tax-advantaged products.”

Survey respondents in the 35-to-54 age range were less likely than those older to say they completely or somewhat understood the tax advantages of annuities, but were twice as likely to consider purchasing another tax-deferred product.

These respondents were more likely than those 55 or older to want more education on annuities, life insurance or 401(k) plans. They were less resistant to making portfolio adjustments, with only about a third saying they would not make any portfolio adjustments as a result of new taxes compared with nearly half of respondents 55 or older.

Respondents with $150,000 to $249,000 in income appeared more optimistic and receptive to making portfolio adjustments, according to the survey. Fifty-two percent believed changes could be made to prepare their portfolio for tax code changes, compared with 36% of all survey respondents.

Half of respondents in this upper income range said they wanted more education on annuities, compared with 41% of the total survey population.

“According to our survey data, men and women ages 35–64 with income of $150,000–249,000 may represent the ripest sales opportunities for advisors,” Henderson said.

Still, although most mass affluent investors will be affected by the new tax environment, 60% of survey respondents expressed either unwillingness or uncertainty whether they would meet with a financial advisor to discuss taxes.

“It’s up to advisors to provide proactive counsel to help all their clients understand potential opportunities—even if certain clients may not currently acknowledge a need to have this conversation.”

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