The world of financial planning can be complex.
Even at the best of times, planning is a difficult and continuous task. Financial strategies are never “done”, so to speak.
They require constant attention to ensure that the plan in question suits an individual’s specific needs. Particularly in times of economic unrest, this task is compounded.
Given that wealth managers, financial brokers and independent advisers exist simply to make this task easier, one would expect that Britons would be keen to seek help.
However, this is not this case – many UK adults are tentative when it comes to engaging with such intermediaries, and particularly independent financial advisers (IFAs).
In fact, fewer than two in five Britons (38 per cent) have ever sought financial advice, with the majority (57 per cent) stating that they do not trust financial advisers, according to recent research from My Pension Expert.
Such figures are concerning. Not only do they suggest that individuals could be making major financial decisions without an in-depth knowledge about various products or the market at large, but this could cost them dearly in the long term.
The burden of choice
Particularly in the current climate, where many savers have been faced with unforeseen financial hardship, some might feel that they have to make snap decisions in reaction to the volatile economic outlook.
The pressure to make rushed decisions is not helped by the fact that there are now so many different savings and investment choices available to choose from.
A plethora of choices may seem like a positive thing at face value. And in many cases, it is – Britons are free choose the option that best aligns with their goals and aspirations, as well as their individual financial circumstances.
But equally, it must be said that too much choice has the potential to overwhelm a person. And when feeling forced to make snap decisions, it can be all too easy to select a product which might not suit a person’s specific needs.
Away from the world of intermediaries, academic studies provide evidence to support this point. In 2000, a study conducted by Columbia University uncovered that when given too many options, individuals become overwhelmed and make rushed decisions.
Three groups of people were taken into a room and asked to choose a jar of jam to take home for free. One group had three jars to choose from, the second had four, and the last had 20.
Those with fewer options made reasoned and logical decisions, based on sensible individual preferences. However, those who had more choice – the group with 20 jars – were unable to do so, consequently making knee-jerk decisions.
While the subject of retirement finance will naturally require a great deal more careful thought and consideration than deciding on a jam jar, the sentiment remains true.