There are two financial strategies that just won’t work in this soft economy -- being oblivious to market changes and depending on dumb luck.
According to a survey commissioned by LeConte Wealth Management, however, an overwhelming majority of East Tennesseans choose to consult “nothing” when making financial decisions.
“Just crossing your fingers and hoping the stock goes up isn’t going to cut it,” said Hoy Grimm, managing partner at LeConte.
“Burying your head in the sand is not an investment strategy right now,” agreed Kevin Painter, also a managing partner at LeConte.
April is Financial Literacy Month and on Tuesday LeConte released a new survey showing that while East Tennesseans are optimistic about the local economy, they find the only things more difficult than finding a financial advisor are raising a child or losing weight. East Tennesseans are four times more likely to consult “nothing” than they are a financial advisor when making decisions about their finances, the survey showed.
In another statistic, most of the 602 respondents said they had no one source of information they almost always used before making important financial decisions. Grimm and Painter said that many area residents may be feeling a sense of paralysis related to managing their finances - a case of simply not knowing what to do or where to go.
“We’re hearing it in the national media all the time,” Grimm said. “People are too afraid to open their 401(k)s or other investment statements for fear of bad news. Our advice, particularly in light of Financial Literacy Month, is to empower yourself with information and certainly to face the music on your own financial situation. Ask pointed questions and get in the trenches of your retirement assets to really understand what you have and what’s going on.”
Grimm and Painter said Rebecca Bryant with Bryant Research conducted the telephone survey in a random digit-dial sample of adults 25 to 80 in Anderson, Blount, Knox, Loudon, Monroe and Sevier counties from Feb. 16 - 25. There was a plus/minus 4 percent margin of error, with 602 respondents split equally between men and women.
While roughly half said it was important to talk to a financial advisor before making financial decisions, 77 percent said they didn’t have a professional advisor and 58 percent had never had one.
Painter said their firm works with individuals who either have “accumulated serious wealth or are serious about accumulating wealth.” Last fall the pair was making strategic decisions about the services they offer clients and opted to survey how serious folks were about their financial futures and how they were navigating obstacles.
“We decided to utilize market research and go to the folks in East Tennessee and see what was on their minds,” Painter said.
Grimm said they wanted to know what residents in the area were thinking about the economy and how had the economy in turn affected their decisions and their confidence in reaching their retirement goals. “We found what you would expect: Nobody is extremely optimistic on the economy but East Tennesseans were more optimistic about the local economy than the national economy,” he said. “People in Knox and Sevier counties were the most optimistic - Monroe, Loudon and Anderson counties were slightly less optimistic and Blount County fell in the middle.”
Grimm said the folks 35 to 64 years old were the most pessimistic about reaching their retirement goals and half of those indicated they were “very concerned” they wouldn’t reach their retirement goals.
When surveyed about where those individuals were building their retirement savings, the majority, 24 percent had 401(k)s, 14 percent were planning to depend on Social Security and 12 or 13 percent planned to depend on savings.
“If you are going to rely on your 401(k), you’re responsible for it. Do you work with an advisor to find advice? Well, 58 percent have never used a financial adviser,” Grimm said.
Since the 401(k) was created in the 1970s, $15 trillion has been amassed by Americans using those personally-managed retirement accounts, said Grimm.
Painter and Grimm also wanted to know where respondents were getting their financial information.
“Sixteen percent used the Internet. The No. 1 response was ‘nothing,’” he said. “Those respondents who are going to retire in 10 years or less - 39 percent - did nothing or didn’t know what to do when making decisions.”
This surprised Grimm. “They should be on their way to making decisions and figuring this out,” he said.
Grimm said they then asked how difficult it was to find a financial advisor. “They said it was easier to get their taxes done or find a spouse than it was to find a good financial advisor,” he said. “They did say finding an advisor was easier than raising a child or losing weight!”
The survey was done in February after the financial meltdown was in full force. Investments in people’s retirement plans were declining, with some companies stopping their 401(k) matches. Still respondents were still willing to say they don’t look for anyone to help with financial decisions. “There’s got to be more people getting serious,” Grimm said.
“Honesty” ranked as the No. 1 characteristic people found important in a good financial advisor, Grimm said. It was followed by the ability to tailor a personal plan to the individual and the ability to deliver financial information in a way people can understand.
“Don’t speak in jargon,” Grimm explained. “That’s something Kevin and I are committed to.”
With the internet ranking fairly high on the scale of where people look for financial advice, Painter and Grimm are poised to take advantage of that feeling. They’ve rebuilt their website, at www.lecontewealth.com, to give guests 48 different financial tools -- calculators to help make decisions on refinancing a home, consolidating debt, car loans, credit card optimizer and a host of other financial questions. The partners said they have made the website free, with no registration and hope East Tennesseans will use the tools to learn more and take more control of their finances. LeConte also invested in technology that allows them to combine information on all a customers assets regardless of whether or not LeConte is managing them.
“We’ve invested in technology that allows us to collect that data from banks into one statement available to the client each day,” Painter said. “They have total transparency on a daily basis and that helps folks stay focused on what they’re doing.”
Painter said something that was apparent from the survey is that respondents are more aware of falling for a good sales pitch than before, looking for bona fide financial planners who have their best interests in mind.
“Their radar is up, and they’re more aware of a good sales pitch and are more willing to put a plan in place and build a relationship before they take their advice,” Grimm said. “They’re reluctant to deal with financial sales people.”
Painter said the research shows that people should get serious about their financial goals. “Having a well-thought out financial plan, a road map, is the starting point to help investors get where they need to go,” he said. “You’ve got to have a plan that adapts to obstacles or takes advantage of opportunities.”
Grimm said people have to realize their financial futures cannot be determined using yesterday’s tools. “People have got to understand Social Security and the company pension plan are going to end up in the Smithsonian next to carrier pigeon,” he said. “People won’t be able to depend on them.”
Painter said investors should evaluate their long-term goals. One alternative is adding equity to a portfolio but often people are reluctant to buy when a stock’s price has dropped.
“Stocks are one thing people don’t want to buy when they’re on sale,” he said.
Grimm agreed. “Cut the price of a Corvette in half, and people will buy it. Cut the price of GE, and people won’t buy it,” he said. “The market has plenty of opportunities for all sorts of different investors now - it just takes courage to take action.”
Painter said it is important for people to master their emotions. “It’s far too easy to let fear and uncertainty cloud the decision-making process. Fear has overtaken those decisions they attempt to make when it comes to making personal financial decisions,” he said. “You’ve got to master that fear, take charge of your situation to accomplish what you set out to do.”