Ethical Issues in Retirement Income Planning: An Advisor’s Perspective

Abstract

The Ethical Issues in Retirement Income Planning study gathered the perceptions of expert retirement income planners. The good news is that the retirement income planners surveyed expressed a high level of satisfaction with the retirement planning profession’s ethical climate, as 64% of respondents believed that the overall ethical culture in the retirement income industry was solid as compared to 36% that expressed some concern. However, advisors were not without concerns. When asked to rank those concerns, a dominant theme emerged through the survey’s quantitative and qualitative findings: Respondents believed that ethical violations were the result of a lack of education and not purposeful malfeasance. The number one ethical concern respondents identified was financial elder abuse. Respondents were not overly concerned that financial advisors were the primary perpetrators but were worried about the industry’s ability to identify cases of financial elder abuse and exploitation, noting that most retirement advisors had not been adequately trained to recognize the signs of abuse, which are often subtle and ambiguous. Respondents reported that they saw very few acts of outright fraud or deceit.

Respondents generally believed that retirement advisors, while well-intentioned, often lacked sufficient knowledge in three main areas: Social Security, Medicare, and tax planning. They feared that these knowledge limitations might lead practitioners to make recommendations that were not in the best interest of their clients. An additional and related concern was that consumers would not be able to act as a check since in many cases they lacked the financial literacy to understand the complex products or plans offered to them. In some cases, clients simply trusted their advisor and remained disengaged from the planning process. Respondents also perceived that this level of client dependence reflected a general lack of understanding of the financial advisor’s pivotal role in the process of planning for retirement.