February 19, 2013
Survey Highlights Knowledge Gaps on Tax-Advantaged Solutions
Opportunity for advisors to educate segments on tax advantages of annuities, life insurance and 401(k) plans
Columbus, Ohio - The reality of increased taxes presents an educational opportunity for advisors, according to a recent poll by Nationwide Financial. The Harris Interactive online survey of 751 mass affluent investors finds that understanding of tax advantaged solutions like annuities, life insurance and 401(k) plans varies among demographic groups.
“Advisors need to recognize that not all clients share the same perspective when considering the implications of new taxes,” said Eric Henderson, senior vice president of Life Insurance and Annuities for Nationwide Financial. “Our survey suggests that, while some may be very receptive to considering portfolio adjustments, others may need a little more proactive education from their advisor.”
Women more optimistic, less confident in knowledge
Women are less likely than men to expect a significant decrease in household income or asset value as a result of tax code changes (16 percent vs. 31 percent), and were less likely than men to have met with a financial advisor to talk about how new taxes may impact their portfolio, with just one in twenty having done so at the time of the survey (5 percent women vs. 13 percent men).
Additionally, half of female survey respondents (52 percent) say they are somewhat or very concerned that changes to the tax code will negatively impact their portfolio compared to seven in 10 male respondents (69 percent) who feel the same way. Women express less confidence than male respondents that they completely understand the tax advantages of annuities (17 percent vs. 27 percent), life insurance (23 percent vs. 34 percent) or 401(k) plans (38 percent vs. 52 percent).
“Time will tell if the comparative optimism of female survey respondents is warranted,” said Henderson. “In the meantime, it’s critical for female investors and their advisors to discuss new taxes. For most married couples, the wife is more likely to outlive her income, so it is important for both spouses to be active in managing the portfolio. The lack of knowledge professed by women respondents may be attributed to what appears to be an underutilization of the financial advisor relationship; however our survey data suggests that women may be more receptive than men to learning more about tax-advantaged products.”
Middle-aged respondents more receptive
Middle-aged survey respondents (ages 35-54) are less likely than those older to say they completely or somewhat understand the tax advantages of annuities (56 percent vs. 73 percent), but are twice as likely to consider purchasing another tax-deferred product (31 percent vs. 14 percent). This group of respondents is more likely than those who are 55 or older to want more education on annuities (51 percent vs. 37 percent), life insurance (23 percent vs. 14 percent) or 401(k) plans (30 percent vs. 17 percent). Middle-aged respondents are less resistant to making portfolio adjustments, with only about one third (31 percent) saying they won’t make any portfolio adjustments as a result of new taxes compared to nearly half (45 percent) of respondents 55 or older.
“Middle-aged respondents want to enhance their understanding of tax deferred products and seem to be more open to making changes to their portfolio,” Henderson said. “Despite a less receptive mindset, 84 percent of those older than 55 say they are comfortable talking to their financial advisor about taxes, which suggests they are at least open to having a conversation.”
Upper-middle income levels optimistic that adjustments can be made
Respondents with $150,000-$249,000 in income appear more optimistic and receptive to making portfolio adjustments. More than half (52 percent) believe changes can be made to prepare their portfolio for tax code changes, compared to just 36 percent of all survey respondents. Half (50 percent) of respondents with $150,000-$249,000 in income want more education on annuities, compared with 41 percent of the total survey population.
“According to our survey data, men and women ages 35-64 with income of $150,000-$249,000 may represent the ripest sales opportunities for advisors,” Henderson said, “however, it’s important to keep in mind that most mass affluent investors will be impacted by the changing tax landscape. Unfortunately, six in 10 (60 percent) survey respondents say they either won’t or are unsure if they will meet with a financial advisor to discuss taxes, so it’s up to advisors to provide proactive counsel to help all their clients understand potential opportunities – even if certain clients may not currently acknowledge a need to have this conversation.”
New tool kit for advisors
This week, Nationwide Financial introduced a new tool kit to help advisors facilitate a conversation with their clients about taxes. Advisors can contact a Nationwide wholesaler to request a kit.
The tax study was conducted online by Harris Interactive between September 28 and October 5, 2012. The respondents comprised of 751 adults ages 18+ having $250,000 or more in annual household income or investable assets. Figures for age, sex, race/ethnicity, education, region and household income were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was also used to adjust for respondents' propensity to be online. Since this data was collected before the Presidential election, respondents were asked to respond to questions assuming both potential election outcomes. The data represented here focuses on responses where respondents assumed the President would be re-elected.
Nationwide Mutual Insurance Company, based in Columbus, Ohio, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by both A.M. Best and Standard & Poor’s. The company provides customers a full range of insurance and financial services, including auto insurance, motorcycle, boat, homeowners, pet, life insurance, farm, commercial insurance, annuities, mortgages, mutual funds, pensions, long-term savings plans and specialty health services. For more information, visit www.nationwide.com.