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Portfolio > Economy & Markets > Fixed Income

Most Investors Without Advisors Are Clueless About Fixed Income: Survey

By Michael S. Fischer

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Investors who work with a financial advisor are much likelier to have a sophisticated understanding of fixed income investing than those who do not enlist professional guidance, BNY Mellon Investment Management reported Monday.

A survey of American investors’ knowledge, attitudes and behaviors about fixed income assets revealed, however, that misconceptions exist around fixed income investing, regardless of whether participants benefited from financial advice.

Sixty-four percent of respondents who said they worked with an advisor reported that they had a lot or at least some understanding of fixed income securities, compared with 35% of those who did not have an advisor.

Greater knowledge about fixed income asset classes appeared to correlate with increased portfolio allocation, according to the survey results.

Nearly two-thirds of investors who received financial advice said they had some allocation toward fixed income products, compared with just a quarter of those who said they had no experience working with an advisor.

Not only that, 42% of those who had received advice expressing some or strong appetite for risk, versus 27% who had not.

“The study suggests a real benefit to working with financial advisors when it comes to having a deeper appreciation of the range and variety of available fixed income asset classes and the role they play in designing one’s investment portfolio,” Liz Young, director of market strategy at BNY Mellon Investment Management, said in a statement.

“FAs can provide real value and understanding in determining the best ways to incorporate a fixed income allocation into one’s investment portfolio based on an individual’s goals and personal set of circumstances.”

Engine Caravan Surveys fielded a national online survey in July among a sample of 1,003 men and 1,004 women.

Persistent Myths

BNY Mellon noted that working with an advisor appeared to help investors understand the important role of fixed income investing in retirement planning.

Asked when average investors should consider adding fixed income to their investment portfolios, 64% of respondents who had worked with an advisor said the best time was before retirement, compared with 44% who had not worked with an advisor.

However, whether or not they had received professional financial advice, survey participants exhibited misconceptions surrounding fixed income investing.

Among these, 33% of respondents who said they had worked with an advisor and 28% who had not believed that all bonds provide the same level of risk.

And 70% of the former and 66% of the latter believed that investing in equities (stocks) requires more knowledge and skill than fixed income investing.

Half of those who had worked with an advisor and four in 10 who had not maintained that fixed income fund returns cannot approach equity fund returns.

The same proportions of both groups insisted that investors must always hold bonds to maturity.

Forty-one percent of those who said they had received financial advice believed that taxes should never be a consideration in deciding the types of bonds to be added to their investment portfolio, versus 35% of those who had never sought professional advice.

“Given the importance of fixed income investing in a balanced portfolio — especially as it relates to retirement planning — the survey suggests a real opportunity for financial professionals to help improve investors’ appreciation of fixed income,” Andrew Provencher, head of North American distribution at BNY Mellon Investment Management, said in the statement.

“Often, that means speaking plain and helping clients appreciate and match their individual goals and needs with the full range of fixed income solutions available to them.”

— Related on ThinkAdvisor:

Michael S. Fischer

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