Americans have doubts about whom they can trust with their finances, a new report released Wednesday by Personal Capital finds.
Personal Capital, a digital wealth management firm, said many people are unaware that financial advisors do not always work in their best interests, and need to be better informed about how to work with advisors to protect and grow their retirement savings.
Harris Poll conducted an online survey on behalf of Personal Capital in early March among 2,178 U.S. adults, 1,301 of whom had at least one investment account.
Seventy percent of survey participants said that recent events in the financial industry had made them question financial professionals’ trustworthiness, with men being less forgiving than women.
Some four out of five respondents said they would no longer trust their financial institution if it were involved in a scandal, and as many said they would switch institutions if theirs were caught up in one.
The report found many survey participants suspicious of financial advisors. Thirty-two percent believed that an advisor was likely to take advantage of a consumer.
Of the 54% who do not work with one, 45% said this was owing to lack of trust. In contrast, the vast majority of those who work with an advisor said they trusted that person to act in their best interest when managing their money.
When it comes to investment fees, investors’ knowledge is low and incorrect notions abound.
Twenty-one percent of respondents who had at least one investment account knew they paid investment fees, but did not know the amount they paid. Ten percent could not even say whether they paid fees.
“Typically, this is not the customer’s fault, as many advisory firms bury fees in fine print and jargon that is difficult to understand,” Personal Capital’s chief executive, Jay Shah, said in a statement.
Thirty-two percent of respondents believed that higher fees for investment accounts generally resulted in higher returns. Younger adults in the survey were more than twice as likely as older ones to believe this.
Not only that, but 28% of investors said they did not pay attention to fees when selecting investment accounts — a number that shot up to 47% for millennial investors.
Many respondents were also unaware of financial advisors’ fiduciary duty. Forty-six percent mistakenly believed that all financial advisors are legally required to always act in their clients’ best interest, and 31% were unsure whether this was the case.
“Americans count on financial advisors to help them manage their money and achieve their goals, whether that’s sending their kids to college or achieving a comfortable retirement,” Personal Capital’s founder and chairman Bill Harris said in the statement.
“Achieving these critical life goals is a roll of the dice if the advisor is not a fiduciary. The financial well-being and best interest of the customer should be the top priority, and a legal obligation, for any firm managing consumers’ money.”
Labor Secretary Alexander Acosta announced Tuesday that the basic principles of the DOL fiduciary rule would indeed take effect on June 9, even as his agency continues to review its finer details.
This came a day after Acosta opined in The Wall Street Journal that Labor had “found no principled legal basis to change the June 9 date while we seek public input.”
— Check out Men Likelier Than Women to Seek Financial Advice on ThinkAdvisor.