Financial Advisors and Boomers: Regular Use May Be Beneficial to Your Wealth Retirement Income Industry Association Strategic Study Series January 2010

Strategic Business Insights' (SBI's) Consumer Financial Decisions (CFD), along with Turner Consulting LLC, is pleased to offer the full version of this report to current RIIA members and other institutions interested in learning how their own strategies can be impacted by the financial attitudes, behaviors, and needs of retiring Boomers.

Anyone may purchase the full version of this report for $5000. (RIIA members may purchase this full version at a discount, or download the members' version of this report at the RIIA Members Web site. If you are a RIIA member and would like more information, please contact Deborah Burkholder; +1-617-342-7390.) Also available for purchase are the report data in (dynamic) Excel format for an additional fee of $1500.

If you have any questions, comments, or suggestions about this report, or for more information about ways in which CFD can help your institution, please feel free to contact us.

About This Report

This report focuses on the value of financial advisors. Boomers have spent most of their adult lives in a society that is growing more self-reliant. The behaviors of this attitude of self-reliance are imprinted in the culture. Many Boomers pump their own gas. They check-out of stores in self-serve lines. They shop online with no personal attendants. No one helps them with these and a growing list of other tasks. But is doing-it-themselves the best way to manage their financial affairs? Will going-it-alone be the best way to manage their affairs in the future? With all the complexity of the new retirement, is there any advantage to getting professional help? The answer is an unequivocal yes. This report proves that getting advice regularly improves the household's bottom-line. Over a ten year period, households that get advice before they make major financial decisions do better financially than those that only rarely or never get advice. This study establishes the "Advisor Advantage" and shows ways that financially successful households have helped themselves as they collaborate with advisors. Finally, the study presents a list of ways that advisors help their clients to achieve financial success that can be a blueprint for effective advisor practices in the years to come.

Report Introduction

The last decade and a half has exposed investors to bull markets, corrections, recessions, the productivity revolution, the dot.com bomb, Y2K, terrorism, globalization, corporate malfeasance, financial analysts whose private opinions diverge from their public ones, emerging markets, commodity shortages, the rise of the Internet, the decline of the social safety net, day-trading, do-it-yourself research, more mutual funds than individual stocks, $4+/gallon gas, bear markets, extreme volatility, a real estate boom, house flipping, a real estate bust, credit cards, ATM cards, debit cards, and on and on. All of these events, combined with increasing complexity, have created great uncertainty for investors. As the shift to the self-reliant, ownership society continues unabated, the critical question to ask is: Is there any advantage to getting professional help? Does using a financial professional improve a household's bottom-line?

Households that regularly use financial professionals before they make major financial decisions have done better than those who never use professionals.

Based upon the research presented here, the answer is an unequivocal yes. It probably comes as no surprise that households that use financial professionals at least sometimes before they make major financial decisions, have done better than those that only rarely or never use professionals.

What may be the reasons behind the results achieved by households that receive advice regularly? What is the basis for the 'Advisor Advantage?' The advantages related to advice appear to flow in particular to households which collaborate with their advisors on important financial decisions, not the delegators, nor those who do it all themselves. These collaborators are both engaged with the professionals who help them and undertake activities that help themselves. Chapters 3, 4, and 5 of this study show how these households help themselves within the context of their collaborative relationships with their advisors.

As in any relationship, it takes two active parties to collaborate effectively. Advisors who collaborate with these household enable the households to thrive financially. Chapter 6, 7 and 8 details the services of advisors. The research suggests that these advisors provide the most benefit to households first by helping the household to construct a comprehensive financial strategy. But most importantly, they secondarily assist in assembling the network of legal, financial investment and risk management services and programs that undergird a household's financial affairs (the household's "financial hygiene"), helping the household to invest wisely and protecting it from unforeseen, but inevitable misfortunes. The cross-silo approach cataloged by this research is careful, deliberate, and wide ranging. While some of these services are not as dramatic or immediate as picking the right stocks, they likely account for the superior financial performance of millions of well-advised households.

Financial professionals may better serve clients' long-term needs by helping them to establish appropriate 'financial hygiene' factors than by picking specific stocks.

With the onset of Boomer retirements, the insights contains in this report serve the advisor community as well as those organizations that support their advisors' strategic initiatives. Advisors and those who manage and produce products for Boomers today, and design services for them tomorrow, need to understand the behaviors that have helped investors to succeed up to this point. Further, stakeholders need to understand the services that will translate well in to the more complex world facing retiring Boomers. This report details the Boomer attitudes and current retiree preferences that give practical clues that can guide advisors in the development of the strategies that will be effective going forward. Advisors who strategically adapt the suggested approaches to their unique situations will be well positioned to work with these Boomer households as they face the significant financial challenges that will come with new types of redefined retirements.

Chapter 1 presents the general case for the advantage of using advisors and then discusses the fact that the preservation of assets will be the critical service that advisors provide to retired Boomers. All households do not have to deplete their assets at the same rate or down to the same levels. Advisors can help retirees to think through a confusing array of financial decisions.

Chapter 2 discusses the fact that the investors who are most successful are the ones who engaged themselves in the planning process. They collaborate with their advisors rather than being either totally reliant on them or distancing themselves from making the hard decisions. They use other information sources to learn about their own financial affairs over time while acting on the expert advice of their advisors.

Chapter 3 focuses on those information sources. They range from impersonal sources—newspapers, TV, brochures—to personal sources—friends and family and institutional personnel. Investors' choices of information sources do vary by how often they receive advice and by their stage of life. Chapter 3 identifies some of these behavior patterns and offers three areas of opportunity that advisors can evaluate as they design their retiree offerings.

Chapter 4 and 5 discusses the type of advisors households select and the advice that is given. Households use more than one advisor at a time to provide advice on a variety of topics. That practice will continue into retirement. The coming battles among advisors for Retired Boomers' business will not be a battle to be the client's sole advisor; it will be the battle to be in the shrinking number of advisors that reside in the client's inner circle of influence. The report offers a strategy for addressing that reality given emerging retiree preferences and attitudes.

Chapters 6, 7 and 8 detail the nuts-and-bolts work of advisors: designing financial strategies, securing legal documents, managing insurances, selecting investment vehicles and instilling confidence in households. Investors can do each of these tasks themselves or have the jobs done quite inexpensively. Putting it all together, however, is the craft of professionals. The report, in fact, puts forth the notion of using interdisciplinary teams as the way to match intractable, interrelated problems with multi-disciplinary solutions. The role of the advisor changes from describing and offering financial products to retirees to the business of integrating and presenting interdisciplinary solutions to a range of retiree needs.

Chapter 9 brings the study findings together. Starting from the finding that households who regularly receive advice are better prepared financially than households who did not receive advice as often, this chapter discusses implications that will remain true was Boomers retire. Advisors who adapt their practices to address these challenges will be better able to work with Boomer households as they negotiate the new types of redefined retirements.

To order a copy of this report, download and print the fax order form, fill it out and fax it to +1-650-859-4544, or order online.

For more information about RIIA's Strategic Study Series, this report, or ways in which these findings (and others) may be applied to your needs, please contact:

Larry Cohen
Vice President, Director
Consumer Financial Decisions
+1-609-378-5042
lcohen@sbi-i.com

Elvin D. Turner, JD MBA
Managing Director
Turner Consulting LLC
+1-860-242-4878
turnerconsultllc@comcast.net

Table of Contents

Section Page
Executive Summary 4
Chapter 1: The Advisor Advantage 6
Chapter 2: The Key to Advisor Advantage – Collaboration 11
Chapter 3: How High Performing Households Help Themselves 17
Chapter 4: Types of Advisor Used By Investor Households 22
Chapter 5: Type of Advice Obtained and Likely to Obtain 27
Chapter 6. Developing Financial Strategies and Securing Legal Documents 35
Chapter 7. Managing the Insurance Coverage and Selecting Investment Accounts 44
Chapter 8. Instilling and Maintaining Household Financial Confidence 51
Chapter 9. Bringing It All Together 55
Appendix A: RIIA Institution and Advisor Retirement Series 58
Appendix B: Study Participants 60
Strategic Business Insights 60
Consumer Financial Decisions 60
Turner Consulting LLC 61

Table of Charts

Number Information Page
Chapter 1: The Advisor Advantage 6
Figure 1 Gap in Mean Total Financial Assets Among Households With At Least $100,000 in investable Assets 1994 - 2004 6
Figure 2 Gap in Mean Total Financial Assets of Pre-Retired Investor Households With At Least $100,000 in Investable Assets 1994 - 2004 8
Figure 3 Gap in Mean Total Financial Assets Among All Retired Investor Households With At Least $100,000 in Investable Assets 1994 - 2004 9
Chapter 2: The Key to Advisor Advantage – Collaboration 11
Figure 4 Who Makes the Decision? Financial Professionals or the Household? 11
Figure 5 Who Makes the Decision? Financial Professionals or the Builder Household? 12
Figure 6 Who Makes the Decision? Financial Professionals or the PreRetired Household? 13
Figure 7 Who Makes the Decision? Financial Professionals or the Retired Household? 14
Figure 8 The Collaborative Process 16
Chapter 3: How High Performing Households Help Themselves 17
Figure 9 Top Sources of Financial Information for Investor Households 17
Figure 10 Pre-Retired Investor Households Sources of Financial Information 19
Figure 11 Retired Investor Households Sources of Financial Information 20
Chapter 4: Types of Advisor Used By Investor Households 22
Figure 12 Financial Advisors Used Recently by Investor Households 22
Figure 13 Financial Advisors Used Recently by Pre-Retired Investor Households 23
Figure 14 Financial Advisors Used Recently by Retired Investor Households 24
Chapter 5: Type of Advice Obtained and Likely to Obtain 27
Figure 15 Type of Advice Recently Obtained - All Investor Households 27
Figure 16 Type of Advice Recently Obtained - Pre-Retired Investor Households 28
Figure 17 Type of Advice Recently Obtained - Retired Investor Households 29
Figure 18 Type of Advice Likely to Obtain - All U.S. Investor Households 30
Figure 19 Type of Advice Likely to Obtain – Pre-Retired Investor Households 31
Figure 20 Type of Advice Likely to Obtain – Retired Investor Households 32
Figure 21 The Advice Gap: Likely to vs. Recently Obtained Among Pre-Retired Investor Households 33
Chapter 6. Developing Financial Strategies and Securing Legal Documents 35
Figure 22 Household That Have a Financial Strategy – All U.S. Investor Households 36
Figure 23 Household That Have a Financial Strategy – Pre-Retired Investor Households 37
Figure 24 Household That Have a Financial Strategy – Retired Households 38
Figure 25 Household Has Secured Legal Documents – All U.S. Investor Households 39
Figure 26 Household Has Secured Legal Documents – Pre-Retired Investor Households 40
Figure 27 Household Has Secured Legal Documents – Retired Investor Households 41
Figure 28 Retired Households, Wills But No Executors 42
Chapter 7. Managing the Insurance Coverage and Selecting Investment Accounts 44
Figure 29 Percentage of Households With Insurance – All U.S. Investor Households 44
Figure 30 Percentage of Households With Insurance – Pre-Retired Investor Households 45
Figure 31 Percentage of Households With Insurance – Retired Investor Households 46
Figure 32 Selected Investment Account Ownership – All U.S. Investor Households 47
Figure 33 Selected Investment Account Ownership – Pre-Retired Investor Households 48
Figure 34 Selected Investment Account Ownership – Retired Investor Households 49
Chapter 8. Instilling and Maintaining Household Financial Confidence 51
Figure 35 Household Financial Confidence – All U.S. Investor Households 51
Figure 36 Household Financial Confidence – Pre-Retired Investor Households 52
Figure 37 Household Financial Confidence – Retired Investor Households 53
Chapter 9. Bringing It All Together 55
Figure 38 The Collaborative Process 56