RIA Rising

Befogged Investors Struggle with the Math

Understanding the rules of investing can be a daunting task for clients, but some new data by Charles Schwab released today suggests the confusion may run deeper than you’d think.

In a telephone survey last month, 35 percent of people ages 18 to 34 didn’t know what an IRA is. Granted, they’re a long way from retirement, but it does raise some eyebrows. And 53 percent of respondents indicated they were uncertain about at least some aspects of IRAs.

Schwab said 28 percent of respondents in the survey were puzzled over the advantages of having both an IRA and a 401(k) plan. Other areas that confused people were the IRA tax rules and implications (27 percent), distinguishing between different types of IRAs (25 percent), and how to open or choose investments in an IRA (23 percent).

Advisors may not find those numbers especially surprising. In this month’s issue of Registered Rep., we reported on a survey last year by Cerulli Associates and Phoenix Marketing International. It says that 31 percent of investors were not sure how their advisors were compensated, while another 33 percent actually thought they were getting the advisors’ services for free.

That’s right: nearly two-thirds of investors polled didn’t understand what their financial advice was costing them. Is ignorance really bliss?

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