Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Retirement Planning > Retirement Investing

Want Clients and Potential Clients to Save More for Retirement? Educate Them

Your article was successfully shared with the contacts you provided.

You’ve been told over the past 20 years that this would be the golden age for financial advisors. The largest generation in U.S. history, the Baby Boomers, would be nearing retirement and everyone would need advisors to help them manage their large pool of investable assets. Advisors who were lucky enough to be around for this era would be thriving off a prospect base of more than 77 million people.

Things turned out drastically different than we all had anticipated. Today, only 11% of boomers say they are very confident they will be able to retire comfortably, according to a recent Associated Press survey, and 44% have little or no faith that they can retire at all.  Boomers are in fact so unprepared that we’re facing a massive, looming retirement crisis that will affect our entire economy. The sad part is that most Boomers aren’t seeking services from financial advisors because they are skeptical. When you consider the other 89% of boomers are not on track to retire and aren’t seeking advisors’ services, it becomes clear that the actual market available for business is extremely small compared to the overall boomer population.  

Economic turmoil and shifting trends in employer-sponsored retirement benefits have been partially responsible for the boomers’ retirement crisis and for generations to come, the road to retirement is only getting foggier. Today, only 31% of employees have a traditional pension plan and for those that work in the private sector, pension payouts typically fund only a portion of their income needs in retirement. Moreover, 66% are not confident their own investments are allocated properlyand many don’t know that the life expectancy for those that reach full retirement age is 85 years. This means that employees, even beyond the boomer generation, are at a huge disadvantage when it comes to having adequate retirement savings.

Why Financial Education Is the Solution

It’s obvious that a solution is needed to bridge the gap.  But the problem isn’t how boomers are investing their assets—it’s how much they are saving in the first place. The solution has to effectively change boomers’ and other future clients’ behavior. Currently, the national average savings rate is just above 5%, so just imagine the impact it would have on your business if all your clients, or potential clients, saved twice that amount. With financial education, advisors could literally be doubling or tripling their revenue without doing anything more themselves. Workplace financial education programs have increased the average employee deferral rates into their retirement accounts to 11%. In fact, the more times an employee receives retirement education, the higher their average deferral rate:

Someone earning $75,000 and who’s been saving for 20 years, putting away 5% of their income—and earning an average 8% annual return—would bring to an advisor about $184,000 in investable assets. A client in the same situation who has been saving 11% would bring to you nearly $405,000 to manage. Which client would you prefer to work with?

Financial education provides a huge benefit to advisors because it also 

teaches people the fundamentals that advisors don’t have the time or would rather not exhaust resources to provide.

Yes, I believe in the value of educating retirement plan participants, and my firm, Financial Finesse, in the workplace education business. That’s why I know how important it is to provide education to employees for that worker’s benefit and her family’s. Better education that increases deferral rates and retirement readiness is also of great benefit to the advisor community, I’d argue, in addition to being good for the country itself.

After all, employees who participate in financial education have less debt, manage their finances better and are more proactive about their finances, realizing when they need a financial advisor rather than playing guessing games with their investments. This opens up an entirely new market that advisors are currently unable to reach. Here’s why financial education can be the solution advisors need:

Educated Clients Are Better Clients

They invest more. Financial education increases employees’ participation in retirement plans.  Financial Finesse’s research, gleaned from actual participants in retirement plans where we provide education, shows that 92% of employees who participate in retirement education make a major change to their retirement plans within 30 days of receiving the education. The most common changes are to increase retirement savings, reallocate their assets to be more appropriate to their time horizon and goals, and open a Roth or traditional IRA to supplement their company-sponsored plan.

They’re less likely to jump ship when the market swings. There are a whole host of obvious reasons why this is true but, in short, informed clients are less likely to overreact. They generally tend to stick to their long-term strategies better and not make mistakes based on fear and emotion. This means less risk for advisors to lose clients due to uncontrollable markets or worse, end up with a complaint from a disgruntled client. Even clients who are satisfied with their advisors are potentially waiting to jump ship. A recent survey by Northstar/Sullivan on rebuilding client trust


found that 36% of clients working with an advisor or firm said they will consider moving their assets despite feeling a sense of satisfaction with them.  Financial education can help increase loyalty and retain valuable clients by showing a commitment to growing their knowledge.

Education Bridges the Trust Divide

Ten years ago, over 10% of calls to our financial helpline were related to how to find a financial advisor. Today, that number has dropped to 2%. With the recession uncovering a multitude of investment and mortgage fraud, and the stock market fluctuations depleting boomers’ portfolios by in some cases around 40%, boomers are understandably feeling fear and skepticism. It’s even more important for advisors to bridge the trust divide. Boomers often share a perception that advisors have an agenda to sell them something, but with financial education, advisors can change this perception to the reality that they are on the same side of the table as their clients.

Showing clients you are objective is not just good virtue, it’s where the financial planning industry is headed. Advisors can support organizations such as the Personal Finance Employee Education Foundation(PFEEF) or the JumpStart coalitionor even promote financial literacy in their communities to brand themselves long-term as professional advice-givers who put their clients first.

In the upcoming months in this recurring commentary on AdvisorOne, I’ll be sharing best practices in financial education for advisors, as well as a toolkit of resources you can use to help educate your clients and prospective clients to grow their knowledge. In turn, I’ll show how you taking these steps can help grow your client base and help build a financially healthy group of consumers. Imagine when the remaining 89% of people are in a position to work with an advisor  because they will have the assets and wealth needed to retire; there may be more work involved for advisors today, but I have a feeling it will be worth it.

For more information on this topic, see some additional writing we’ve done at Financial Finesse on this topic:

(We ask that you respect all copyright laws and do not alter any resources from Financial Finesse in any way.)


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.