5 findings from Betterment that should give advisors and investors reason for optimism

June 28, 2023 6:28 PM

A recent survey by the financial services firm Betterment is adding to the reasons advisors have to feel good about what they do.

Betterment's retail investor survey for 2023 suggests that people who consult planners tend to be more optimistic about their finances than those who don't. From 1,200 respondents surveyed from March 23-27 with the help of the research firm Sago, formerly the Schlesinger Group, Betterment found that 67% seek out advice from financial advisors. Among them, about 7 out of 10 reported feeling good about their prospects this year and roughly the same proportion said their outlook had improved from what it was a mere six months ago.

Among those without advisors, though, only 42% said they were feeling good about 2023. And not quite 3 out of 10 said their hopes had risen in the past six months.

Eric Amzalag, a certified financial planner and the owner of Peak Financial Planning in Woodland Hills, California, said one of the advantages clients gain from working with a professional advisor should be additional confidence in their financial decisions. He said planners can offer peace of mind not only with investments, but also large purchases.

"A lot of people want to know, 'Can I buy this thing, or should I buy this thing?'" Amzalag said. "That has nothing to do with the rate of return. You can be talking about home purchases, car purchases, a vacation, a wedding."

Nicholas Bunio, a certified financial planner at Brookstone Wealth Advisors in Wheaton, Illinois, said part of an advisor's job is to offer reassurance in times of falling markets and economic downturns. He agreed that planners' expertise extends far beyond chasing returns.

"People still need advice with taxes, Social Security, pension, estate planning, insurance, a death in the family, just to name a few," he said.

In another bit of good news for the planning industry, the respondents named advisors as far and away their most trusted source of financial advice. Asked to rank eight different sources of information in order of their trustworthiness, 38% of the survey takers placed professional wealth managers at the top. The next most trusted sources were friends and family, ranked No. 1 by 15% of the respondents, and TV financial shows and news, ranked No. 1 by 11%.

The results corroborate other recent surveys suggesting investors continue to put great faith in the expertise and professionalism of financial planners. The Financial Industry Regulatory Authority, the broker-dealer industry's self-regulator, released a report in April finding that 29% of the investors surveyed who opened their first taxable investment accounts in 2022 cited financial professionals as their main source of investing information.

Here are more insights from Betterment's latest investor survey:

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Things are looking up

Among all the survey respondents, both those with and without financial advisors, nearly 60% deemed their outlook for the current years as either "positive" or "very positive." The hopeful feelings did tend to diminish with age, though.

Roughly 70% of the respondents in the Generation Z and millennial generational groups said they feel good about their prospects this year. Only 17% of baby boomers in the survey said the same.

Evan Henderson, a certified financial planner at Northright Financial in Appleton, Wisconsin, said advisors can help put the latest headlines in context.

"When I work with client's, I try to educate them on market history and volatility," Henderson said. "When they understand this better, they can block out the noise from financial media making it seem like the sky is falling."

Younger investors were also more likely to report good investing results over the past year. Half of all the Gen Z respondents said their portfolios were up either slightly or significantly in the past 12 months, as did 64% of millennials. Only 2 out of 10 boomers could say the same, though.

Dan Egan, the vice president of behavioral finance and investing at Betterment, said there are several possible reasons for the discrepancy.

"Younger people often focus on nominal changes and are more likely to be in higher-risk investments (which are performing relatively well right now)," he said in a statement.

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For the long term

In more results that should warm the hearts of advisors, survey takers marked having money in retirement as their top goal. Given 10 different choices, 17% of the respondents said "saving for retirement" was their No. 1 priority, and 15% said "making money last in retirement" was tops for them.

Other popular responses were: having long-term savings (marked as No. 1 by 14% of the respondents); reducing spending (12%); protecting themselves against losses (11%); and beating inflation (9%).

Asked about the coming year, 75% said they plan to save slightly more or much more. And nearly 7 out of 10 said they plan to move more of their money into risky investments.

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Cash is king

The Betterment survey also asked the respondents about what they're investing in, giving them a series of possible responses ranging from real estate to retirement accounts to cryptocurrency. More than 4 out of 10 said they have increased their cash holdings either significantly or somewhat.

Amzalag said that could be a sign that not enough clients are working with advisors. Most financial professionals would place a priority on investments with higher return prospects than cash, especially at times of high inflation.

"I think when people don't have confidence, they're paralyzed into inactivity," he said. "They have no idea which way to go. So you just stay overweight in cash, because at least it's something you are familiar with."

Of the respondents, 37% said they moved either significantly or slightly greater amounts of money into real estate and 40% into retirement accounts. Not quite 30% invested more heavily in cryptocurrencies, and only 36% put more money into stocks and bonds.

Despite the recent so-called "crypto winter" following the implosion of the crypto exchange FTX last year, more than 6 out of 10 of the respondents said they still have money in digital assets.

"This is in line with Betterment's philosophy that crypto can constitute a portion of a responsible, diversified portfolio as a long-term investment, not a quick-turn way to make a profit," Jesse Proudman, Betterment vice president of crypto investing, said in a statement.

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Know yourself

Even with their reliance on advisors, the survey respondents generally considered themselves knowledgeable on financial matters. Nearly half said they were either "very knowledgeable" or had "some advanced knowledge."

Men were generally more confident in their expertise than women. Nearly 6 out of 10 of the male respondents said they had advanced knowledge or somewhat advanced knowledge in financial matters. Only 41% of the female respondents said the same.

But people in both groups did equally well when it came to returns. Nearly 7 out of 10 reported no changes or improvements in their portfolios' performances over the past 12 months.

Among different generations, millennials were the most committed to reading financial news regularly. More than 4 out of 10 of respondents in this generation — comprising people born between the early 1980s and late 1990s — said they read financial news at least once a day. That rate fell to 27% among members of Generation X, born between the mid-'60s and 1980, and 15% among baby boomers.

The most popular sources of financial information were TV shows and news (cited by 42% of the respondents), online publications (41%), social media (31%), and friends and family (31%).

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Doing well at doing well

Even with the recent uncertainty in markets, more than 6 out of 10 of the investor respondents reported being in a significantly or somewhat stable financial state. That was up from the 40% who said the same thing in a similar survey last year. Only 13% of the investor respondents said their finances were in a somewhat or significantly unstable state.

Almost all the respondents, 85% of the total expressed a desire to gain more financial knowledge. Just over half said they wanted to learn more through the news, nearly 4 out of 10 said they would take financial classes and 34% said they planned to hire an advisor.