Wait …what? A new report from Rand Corp. about the impact of working with financial advisors was posted Tuesday to the DOL’s home page for the fiduciary issue. It confused some readers.
“While much of the literature provides evidence that individuals who receive professional financial advice are more financially healthy than those who do not, few papers attempt to address the endogeneity concerns of reverse causation, limiting insights into whether [advisors] are causing improvements in their clients’ savings behavior.”
Thankfully translators were available, and it appears the report, tilted “Do Financial Advisers Influence Savings Behavior?” attempted to determine whether advisors were responsible for financial success, or if those clients that are financially successful are more likely to engage advisors.
“Consumers who consult financial [advisors] tend to be wealthier, higher income, more educated, older, and more financially literate than their peers who forgo advice,” the report notes. “But are financial [advisors] responsible for improved financial well-being, or are those who are more financially well-off more likely to seek advice?”
The answer? They don’t know. While having a financial advisor leads to better financial outcomes, the role the advisor plays in those outcomes in still undetermined.
“While there is limited evidence that suggests that [advisors] have a direct impact on their clients’ savings behaviors, there is evidence to suggest that individuals who receive advice tend to be more likely to have a plan for retirement, more likely to feel confident about their retirement preparations, and more likely to have retirement goals,” the authors write.
However, it goes on the say that as with the literature on the impact of [advisors] on savings behaviors, much of the work is “correlational and unable to establish whether [advisors] are causing improvements in retirement-planning outcomes, especially over the long term.”
“Moreover, research examining the impact of workplace retirement seminars suggests that some of the same benefits might be conferred through less personalized interactions.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
