Affluent Investors Don’t Recognize Impact of Conservatism

The quarterly survey from Bank of America Merrill Lynch Wealth Management division looks at the financial priorities and concerns of affluent Americans (those with a minimum of $250,000 investable assets).  The clearest continuing trend the survey picked up on is the redefinition of “retirement.” Eighty-four percent of Baby Boomers (age 46-64) believe their retirement will differ from that of their parents.   

The differences from today’s near-retirees and previous generations are abundant. The Baby Boomer generation plans to be much more active in retirement (86%), have a better standard of living (72%), and keeping working to remain active and engaged (70%).  When asked what word best describes their vision of retirement, 35% said “freedom,” 31% said “opportunity,” and 21% said “relaxation.”

Gender Differences 

The survey gave serious consideration to the differences between male and female investors as well.  Sharon Oberlander, Managing Director and Merrill Lynch Wealth Management Adviser with The Oberlander Group in Chicago, said from her experience as an adviser, while both men and women would equally see “freedom” in retirement, she thinks that mostly women would give the “opportunity” description, whereas mostly men would pair “freedom” with “relaxation.”   She said the opportunity women are likely to be referring to is philanthropic work and that non-profit organizations should look to this demographic as a valuable resource.

Another difference between the genders is how much they’re concerned about the “big issues” in retirement: 70% of women are concerned about rising health care costs and expenses, whereas 57% of men share that concern.  Sixty-three percent of women are concerned about ensuring retirement assets last throughout a lifetime, where 52% of men are concerned.  Lyle LaMothe, Head of U.S. Wealth Management, said women are generally more aware of overall household finances.  While men may be more comparable to a CIO, he said, women typically have the more all-encompassing perspective of a CFO.  It is critical to address the needs of both genders and develop a portfolio in which everyone is comfortable, Oberlander added.   

Lessons from Retirees 

The “Affluent Insights Quarterly” survey asked retirees what would be the most important piece of advice they would give their 30-year-old self.  Thirty-four percent said to work with a financial adviser or to work with one earlier in life, 27% said to take a more hands-on approach to their portfolios, 19% said to account for long-term expenses, and 14% said to better manage debt.Additionally, 78% of retirees said financial planning should begin in your 30s, and 57% said it should begin as early as your 20s.

The reason this early start is a good idea, said Andy Seig, Head of Retirement Services, is because time is the best thing to have when planning for retirement; there is nothing stronger than the compounding that can take place over decades. Seig and LaMothe are most concerned by the survey’s findings that 59% of 18-34 year-old investors (mean age of 31) described themselves as conservative. And even though 13% of the 1,000 affluent investors surveyed fell into this age range, the small sample is still statistically significant, LaMothe added.  Since younger investors, both affluent and those with fewer assets, began investing in such turbulent times, the fear among financial advisers is that this conservative mindset will be hard to shake.

Financial Advisers Play Important Role 

Two-thirds of the non-retirees surveyed said that working with a financial adviser has given them confidence in their ability to meet long term financial goals. Affluent retirees were asked what was the most valuable piece of advice they received from an adviser.  Sixty-percent said proper asset allocation was most important, 22% said calculating how much they would need to meet their standard of living, and 18% said how to incorporate Social Security into retirement planning.

Frequency of communication continues to climb in popularity, the survey found.  Forty-two percent of affluent Americans speak with their adviser quarterly, 28% monthly, 21% twice a week or less, 7% weekly and even 2% daily.   They survey also found that 60% of investors have been working with the same adviser for six years or more.  Oberlander said the tenure of the relationship has a direct effect on confidence.  A conversation that encompasses all aspects of a person’s finances is intimate, she said, and added that once it takes place, it’s likely to form a relationship that can last a lifetime.