Diversification is a key component of a smart investment strategy, and consumers who adequately spread their investment dollars across several asset classes are more likely to find that they achieve their financial goals in retirement.
Unfortunately, it’s clear that many consumers remain unaware of the best ways to diversify their portfolio. Financial professionals are key to expanding clients’ understanding of what products and investments can lead to long-term financial success.
Financial professionals need to position themselves as educators who guide consumers to products they may not know about.
A noticeable difference
A glance at diversification between consumers who work with financial professionals and those who do not demonstrates the impact that a financial professional can have on consumers.
A new study conducted by the Harris Poll found consumers who work with financial professionals are more likely to recognize the value of many different investments as part of a larger portfolio. The products listed included life insurance, stocks and bonds.
Among those with advisors, 38 percent said life insurance would aid financial planning and 28 percent said the same for annuities. Just 14 percent of those without advisors saw the value in life insurance, and a paltry 5 percent of people without advisors felt positively about annuities.
While it is evident that advisors are doing a good job of educating their clients on the value of life insurance products, it’s also clear that substantial room for growth remains.
High net worth remains an area for growth
The numbers indicate that many clients simply don’t realize the value of certain investments, and some of the people in the dark might have the most to invest. High net worth clients stand to gain significantly from a smart diversification strategy, but many have an independent streak that might prevent them from getting the advice they need.
According to a survey by Cerulli Associates, 30 percent of high net worth investors consider themselves “self-directed.” That independence probably helped these individuals build wealth, but it could be a liability if they are not adequately diversifying their holdings due to a lack of knowledge.
Financial professionals need to keep client confusion about life insurance policies in mind with all clients, and should provide consistent policy reviews that demonstrate the potential effects of improved diversification for clients.