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Consumer mistrust leaves retirement planning in the dust

Lack of consumer trust leaves retirement advisors at a disadvantage.

A fundamental lack of trust is one major reason why a large segment of consumers may be reluctant to allow financial services providers to help them with their retirement savings and income planning, a survey by Deloitte’s Center for Financial Services has revealed.

Deloitte’s survey of nearly 4,500 consumers from a wide range of age and income groups found trust issues to be one of five barriers preventing life insurers, annuity companies and their intermediaries from more effectively reaching prospects when it comes to retirement products and services.

Our prior articles on this survey focused on the first three barriers — conflicting financial priorities, a failure to communicate effectively with potential prospects (particularly via the workplace), as well as a basic lack of retirement-related product knowledge among consumers. Next week, we’ll conclude this series by examining the often self-defeating “do-it-myself” mentality prevalent among many consumers when it comes to retirement planning.

See: Revealed: The 5 biggest barriers to retirement planning

But in terms of trust, the Deloitte survey found that attribute in short supply among respondents. Indeed, no more than two in 10 expressed a high degree of trust in any type of financial institution. Intermediaries did not fare any better, with only 15 percent expressing a high degree of trust in financial advisors, and just 11 percent finding insurance agents and brokers to be highly trustworthy.

The survey results suggest that lack of trust for some may stem from a fear of losing control over their retirement portfolio, perhaps out of concern that financial services institutions and their intermediaries might be motivated to guide them toward investments benefitting the provider rather than the client. Such motivations might be commissions earned on investment transactions, placement with a favored provider, or the marketing of an affiliated product.

This concern is illustrated by the finding that 20 percent of those surveyed indicated they don’t trust intermediaries to provide objective advice to address their retirement savings and income needs.

Gaining such trust is imperative. The Deloitte survey found that among respondents with formal plans for retirement, 83 percent of those who have a high level of trust in advisors worked with a financial professional to help put their plan together, compared with only 32 percent of those who have a low level of trust in such intermediaries.

The trust barrier likely influences product choice as well. For example, three in 10 respondents in Deloitte’s survey said they don’t trust that institutions promising guaranteed income will be able to deliver on their commitment when the consumer retires.

Complicating efforts to overcome the trust barrier is the widespread skepticism toward advertising about retirement products and services, with only 7 percent of those surveyed characterizing ads from financial institutions as highly trustworthy.

So, how might life insurers, annuities providers and their intermediaries overcome the trust barrier?

A holistic approach

There may be no easy or quick way to build something as complex and multi-faceted as trust, but there are several approaches that could be emphasized. One option that could go a long way toward resolving the trust issue is to adopt a more holistic attitude toward retirement planning, so that a multitude of issues are addressed simultaneously.

Too often there is a tendency in the industry to take a narrow, product-centric approach to selling retirement solutions, when in fact the reality is that many consumers are often juggling multiple and more immediate financial priorities. Acknowledging the totality of real-life concerns that individuals face and engaging in conversations about them can go a long way toward establishing the trust that is so clearly needed in the industry.

In addition, there has to be greater candor on the industry’s part and a genuine attempt to become facilitators and enablers, as opposed to just serving as product providers and transaction generators. Talking about retirement in the context of other financial and lifestyle concerns is likely to result in greater trust and willingness to embrace the retirement planning discipline. 

Another possible way to engender greater trust is to leverage personal sources — including family and friends — as channels of communication regarding retirement matters. Nearly one in five of those surveyed said recommendations from a family member or a friend might convince them to seek outside help with retirement planning. New social media strategies might also be considered to capitalize on the power of personal recommendations.

In addition, reaching out to prospects at a younger age and establishing a longstanding financial planning relationship might serve to build greater trust and confidence in a provider’s advice, products and services over time. This will allow retirement issues to be raised and addressed sequentially and gradually, rather than taking a more transactional approach that may be viewed as pushing one particular line of retirement-related products prematurely, with the risk of alienating the client.

The preferred medium to overcome such barriers is face-to-face communication. This is where personal relationships can be most easily established and a wide array of priorities addressed to gain the confidence of consumers. The challenge is to get in the door for such one-on-one sessions.

But the biggest problem might be the costs involved in facilitating these high-touch interactions. Thus, this approach may be viable only for more affluent prospects, while other segments of the population might be more economically reached and serviced via online interactions, including the potential for video conferences.

A full report on what the survey results have to say about overcoming all five barriers —“Meeting the Retirement Challenge: New Approaches and Solutions for the Financial Services Industry”—can be accessed with this link.

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