Academic journal article Journal of Financial Counseling and Planning

Factors Associated with Getting and Dropping Financial Advisors among Older Adults: Evidence from Longitudinal Data

Academic journal article Journal of Financial Counseling and Planning

Factors Associated with Getting and Dropping Financial Advisors among Older Adults: Evidence from Longitudinal Data

Article excerpt

Our understanding about the determinants of financial help seeking has seen limited advances over the last decade. Although we know more about the correlates of having a financial advisor, we still know relatively little about factors related to beginning or ending the use of a financial advisor. We know less about the financial advice seeking behavior of older adults who may be most at risk of poor financial decisions. We seek to provide insight about when older adults decide to seek financial advice.

Many older adults hold a considerable amount of wealth. Yet Agarwal, Driscoll, Gabaix, and Laibson (2009) argue that many of these older adults may not have the ability to properly manage their resources. They also recognize the value that professional financial advisors may provide these vulnerable adults. Increasing our understanding about when older adults decide to begin using a financial advisor can help us better understand when they may need additional guidance on how to select a quality financial advisor to help manage their accumulated wealth.

This study presents the first longitudinal results showing factors associated with beginning and discontinuing the use of a financial advisor among older adults. Using the 1993 and 1995 waves of the Asset and Health Dynamics among the Oldest Old (AHEAD), we analyzed the impact that influential life events, changes in willingness to seek help, and changes in financial situation have on the likelihood of older individuals changing their use of professional financial advisors.

This study is the first of its kind to identify factors that may contribute to the initial establishment of a financial planning relationship. In other words, we identify potential reasons why an older adult may decide to begin using a professional financial advisor. This study is also the first study to describe reasons why an individual may decide to discontinue their use of a financial advisor. Conversely, we identify factors that may strengthen the decision to use a financial advisor.

The paper is organized as follows. We review the literature of using and discontinuing the use of financial advisors, followed by a review of the literature on help-seeking behavior. We next present a theoretical framework that we use to construct our hypotheses. We describe our study and our findings, followed by a discussion of the results in light of our theoretical framework. We conclude with a brief discussion of how the findings of our study have application for financial advisors.

Literature Review

Use of a Financial Advisor

Relatively few households use a financial advisor (Bi, Montalto, & Fox, 2002; Hanna, 2011). Using the Survey of Consumer Finances (SCF), Hanna (2011) found that 21% of households used a financial planner in 1998, which increased only slightly to 25% in 2007. Factors positively associated with using professional financial advice include income (Joo & Grable, 2001; Hanna, 2011) and education (Hanna, 2011). Wealth or net worth is also associated with using financial advice (Chang, 2005; Bluethgen, Gintschel, Hackethal, & Mueller, 2008). Hanna (2011) found that the likelihood of using an advisor increases as net worth increases from zero and as net worth decreases from zero. Females are more likely than males to use financial advice (Joo & Grable, 2001; Bluethgen, et al., 2008). Evidence is mixed about the impact of risk tolerance on using a financial advisor (Joo & Grable, 2001; Bluethgen et al., 2008; Hanna, 2011).

Although many factors may impact using a financial planner, less is known about the timing of establishing a financial planning relationship. Age is associated with using financial advice (Bluethgen et al., 2008). Using cross-sectional data, Hanna (2011) found a curvilinear relation with age where the likelihood of using a planner peaks around age 42. An increase in saving during middle age, in anticipation for retirement, may impact the perceived benefit of seeking retirement planning advice. …

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