The American College of Financial Services has conducted the Retirement Income Literacy Study over the past decade to get a better understanding of consumers at or near retirement age and their knowledge of key elements of retirement.
Now, in a new take on the analysis, retirement researchers Eric Ludwig and Chet Bennetts have turned the literacy lens on financial advisors, seeking to determine their overall level of retirement income planning literacy and to identify what training or certifications are associated with the greatest retirement knowledge.
As it turns out, advisors with the certified financial planner designation demonstrated “meaningfully higher” levels of income planning literacy. That outperformance was followed closely by advisors who have earned the retirement income certified professional designation offered by the American College of Financial Services.
These results were largely expected by the researchers, given the substantial coursework involved in earning the CFP and the RICP. A number of other predictors of higher retirement income literacy were more surprising, including that married advisors performed better than their single or divorced peers.
Also notable, according to Ludwig and Bennetts, is a “curvilinear” relationship between the number of designations held and advisors’ quiz scores, indicating a diminishing-returns effect when advisors pursue multiple credentials specifically for retirement income literacy knowledge. So, while earning at least one planning designation brings big benefits to retirement income literacy, stacking credentials apparently does not.
How Advisors Scored
Overall, advisors with any planning-focused designation scored 7.63 points higher on average than those without designations, controlling for other factors. Age also shows a positive relationship with quiz scores, with each additional year of age corresponding to a 0.11-point increase in scores.
Female advisors scored 4.11 points lower than their male counterparts, according to the analysis. Regarding race, the model did not reveal statistically significant differences between white advisors and those identifying as Black, Asian, Hispanic and other.
“This suggests that racial disparities in retirement income literacy may be less pronounced among financial professionals compared to the general population,” the authors suggest.
As noted, marital status shows a statistically significant effect, with married or partnered individuals scoring 2.06 points higher than those who are not married or partnered.
As with the general population, higher net worth is positively associated with higher quiz scores among advisors. For example, compared to those with net worth less than $100,000, advisors in higher net-worth categories scored significantly higher. The increases range from 3.94 points for those with $200,000 to $299,000 to 5.07 points for those with $500,000 to $999,000 in net worth.
Notably, higher secondary and post-graduate education levels did not show a significant association with higher scores. This suggests that among advisors, formal education beyond a college degree may not significantly affect retirement income literacy, after accounting for other factors such as professional designation.
Diminishing Returns
As the authors explain, the regression results showed a “significant positive linear term” and a “significant negative quadratic term” for the number of designations held compared with quiz performance.
This indicates a substantial diminishing-returns effect as the number of designations increases. For example, while the difference between zero and one designations is about 4.5 points, the difference between four and five designations on average quiz scores is negligible.
“These results indicate that while obtaining professional designations is associated with higher scores, there may be diminishing returns to acquiring multiple designations specifically in terms of retirement income literacy knowledge, as different designations focus on different areas of financial planning expertise,” the authors conclude.
Credit: David Palmer/ALM
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