Head of Defined Contribution and Wealth Advisor Services Matt Sommer helped conduct a survey that examined the relationship among financial professional use, major life events and beneficial financial planning intentions, such as paying down debt. The findings indicate that financial professionals can be instrumental in helping individuals navigate life transitions, both financially and emotionally.

The potential advantages of working with an experienced financial professional have been well established through a number of studies over the past several years, but most of the research has largely focused on investment returns. While important, return generation is just one aspect of the value financial professionals can provide.

An experienced financial professional can also provide behavioral guidance to help investors stay the course through periods of market volatility, encourage clients to follow through on agreed upon action steps, and act as a trusted guide to help individuals overcome financial hurdles – particularly during major life transitions such as marriage, birth of a child, divorce, retirement or death of a spouse.

Considering all the advantages a financial professional can offer – and the importance of communicating those advantages as a means of encouraging more Americans to seek financial advice – it has been promising to see recent research begin to delve deeper into these important qualitative benefits.

New Research

In an effort to further this research, Janus Henderson recently sponsored a survey of roughly 1,000 U.S. households that sought to determine whether there is a positive relationship between working with a financial professional and having “beneficial financial planning intentions” (i.e., intending to pursue more positive financial behaviors such as improving one’s saving habits or paying off debt).

The survey also explored whether there was a positive relationship between these types of beneficial intentions and experiencing a major life event.

Finally, the survey considered the extent to which both of these variables – life events and beneficial intentions – were positively impacted by working with a financial professional.

Findings and Implications

The findings of the survey were published in a paper titled “Financial Advisor Use, Life Events, and the Relationship with Beneficial Intentions,” which I co-authored with two colleagues from Kansas State University, HanNa Lim, Ph.D., CFP®, and Maurice MacDonald, Ph.D.

In a final sample of 953 online survey respondents, we were surprised to find no relationship between working with a financial professional and beneficial financial planning intentions. However, for those respondents who had experienced a life event within the prior year, there was a greater tendency toward beneficial intentions. Further, we found a positive relationship between the number of life events a respondent experienced and the number of beneficial intentions reported.

The study of intentions is important because intentions precede behavior. Of course, there is no guarantee that respondents will actually follow through on the plans they reported in the survey. But that is another area where a financial professional can, in theory, provide value: helping clients transition from intentions to action. This point brings us to the most significant finding: the statistical relationship between life events and beneficial financial intentions is stronger for individuals who are working with a financial professional compared to those who are not.

In summary, our survey findings indicate that experiencing a life event or transition appears to motivate individuals to address their long-term financial security and provides compelling evidence that planning for these transitions is an important benefit of working with a financial professional.

An Opportunity to Highlight the Value of Advice

Just as earlier research focused on the more technical aspects of financial advice such as asset allocation and estate planning, the profession itself appears to be evolving to become more qualitative in nature. The depth and breadth of how financial professionals provide value to clients has expanded to include behavioral guidance, emotional support and motiving clients to translate their intentions into actions – all of which are invaluable services for individuals navigating life transitions.

By highlighting the challenges of life events and the assistance financial professionals can provide during these difficult periods, the findings of this study can serve to help educate investors about the value of financial advice. Specifically, an advisors’ ability to assess and offer timely recommendations regarding difficult life transitions may offer a more compelling reason for individuals to engage with a financial professional.

Lastly, while goal setting remains a critical part of the financial planning process, the study’s findings suggest that financial professionals may want to consider placing a greater emphasis on life events and develop dedicated strategies to help clients navigate these transitions, both financially and emotionally.

 

¹Godbout, T. “Why consumers use – and don’t use – financial advisors.” National Association of Plan Advisors, March 2021.
²Financial illiteracy cost Americans $1,634 in 2020.” National Financial Educators Council, 2020.