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DIY Investors Are Missing Out: Northwestern Mutual

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The DIY movement has permeated many aspects of American culture, including financial planning — not always to the advantage of those looking toward retirement.

A study published Tuesday by Northwestern Mutual found that 69% of U.S. adults took a self-directed approach to planning, possibly aggravating already complex financial challenges.

In contrast, Americans who worked with an advisor looked forward to a secure retirement, the survey found.

Harris Poll conducted the online survey in January of 5,474 American adults age 18 or older, exploring their attitudes and behaviors toward finances and planning.

Only 40% of respondents said they had set goals for their financial future, and a mere 12% had written a financial plan. Among those with a financial plan, 9% expressed great confidence that their plan could withstand market cycles.

Thirty percent said they were “not at all financially prepared” to live to age 75, and more than a third had no idea of how much income they might need in retirement.

Nearly two-thirds of working respondents said they expected to delay retirement by necessity, mainly because of insufficient savings.

The study found that the main catalysts for rethinking financial planning were reactive and circumstantial rather than proactive and systemic.

Fifty-nine percent of respondents cited a cash windfall and 38% an unexpected financial emergency as the primary reasons for seeking advice.

“Financial security shouldn’t be left to a roll of the dice as the stakes are too high,” Steve Mannebach, Northwestern Mutual’s vice president for field growth and development, said in a statement.

“Financial health is similar to physical health — some people are in good shape and just need routine preventative care, while others might need a specialist to manage a serious issue or achieve a certain goal. Like medical professionals, advisors can help in either case. The key is just getting started.”

The study found several misperceptions among respondents who did not have an advisor. Thirty percent believed that having an advisor required a certain level of assets, and 27% felt they could not afford one.

This resulted in a “missed opportunity,” the study said, pointing to data showing the effects of working with an advisor.

Sixty-eight percent of participants with an advisor said they felt “very financially secure,” compared with 35% of those without an advisor.

Moreover, 72% of those with an advisors considered themselves disciplined or highly disciplined planners, versus 46% of those without one.

The data also showed that 79% of working respondents with an advisor expected to be happy in retirement, while 65% of those without an advisor had that expectation.

Finally, the survey found that those who work with advisors were much more likely to be savers and to hold less debt.

They were also more likely than those without an advisor to have a diversified portfolio of financial solutions:

  • A savings account: 77% vs. 61%
  • An IRA: 61% vs. 23%
  • Stocks: 49% vs. 17%
  • Mutual funds: 48% vs. 11%
  • Permanent life insurance: 38% vs. 14%
  • Long-term care insurance: 20% vs. 4%
  • College savings plan: 14% vs. 4%

“Financial planning is less about how much you have in assets and more about maximizing the assets you do have,” Mannebach said.

Among all respondents, 73% ranked experience and 44% reputation as the chief criteria for evaluating a prospective advisor. 

However, 48% of millennials in the study said that after experience, they were most influenced by recommendations from their networks, while only 32% of other generations offered this as a common reason for choosing an advisor.

— Check out Sticker Shock: 71% of Parents Say College Is Too Costly on ThinkAdvisor.


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