Financial Planners Research Articles

Investment in financial literacy and financial advice-seeking: Substitutes or complements?

This paper studies the strategic relationship between investment in financial literacy and seeking advice from a financial planner. While the existing literature on this topic considers financial literacy as exogenously given, we propose a simple model in which it is endogenously determined through the consumer's investment in financial literacy. Our theoretical model suggests that in this case, investment in financial literacy and financial advice-seeking are substitutes. We test this hypothesis using data from the 2016 Survey of Consumer Finances. When using the propensity score matching method to control for self-selection bias, we find a significant negative relationship between the probability of seeking advice from a financial planner and investment in financial literacy. While these findings cannot be easily explained by existing models, this paper shows that endogenizing financial literacy reconciles the results.

Ethics in financial planning: Analysis of ombudsman decisions using codes of ethics and fiduciary duty standards

Scandals show that ethics is an important topic in financial planning. Our research analyses 212 financial ombudsman decisions (2013–2018) to understand the nature of financial planning misconduct in complaint decisions. We develop a coding structure to ascertain what professional conduct involves and then use content analysis and cluster analysis to identify the aspects of professional conduct occurring in these misconduct decisions. Diligence, acting in the client’s best interest and having no reasonable basis for advice are interconnected elements in over half of these decisions. Secondary elements are misleading statements, conflicts of interest and disclosure. Analysis of decisions involving fiduciary duty showed that financial planners failed to ascertain a client’s circumstances and did not form advice based on their client’s information. As financial planning professionalises, future research, financial planning education, policy and practice should address these issues. JEL Classification: D14, G20, G50

Disclosure effectiveness in the financial planning industry

PurposeScandals in the Australian financial services industry highlight the conflicts of interest between those who provide financial advice (financial planners) and their clients. Disclosure is a potential governance tool to manage these conflicts of interest by reducing asymmetries in information. Yet, the efficacy of disclosure is questionable as scandals persist, so this paper aims to research the effectiveness of disclosure in financial planning.Design/methodology/approachThis research used a qualitative approach involving the triangulation of data from parliamentary inquiries in financial services with data collected in semi-structured interviews with financial planning professionals.FindingsThe findings draw a clear portrayal of the disclosure requirements and illustrate how disclosure processes are onerous and complex. Starting with detangling the complex interactions between the beneficial role of disclosure in reducing information asymmetry and unethical behaviour and the detrimental effect of information overload, the authors then highlight effective disclosure techniques used by financial planners, including visualisation of material information. The study reveals that financial planners perceive their role as filtering information for clients and ensuring clients’ comprehension, due to the onerous disclosure requirements.Research limitations/implicationsThe study is of interest to researchers, practitioners, policymakers and society as it implies that how disclosure occurs is as important as what information is disclosed. Those who wish to foster effective disclosure in the financial services industry need to consider the quantity, quality and process of disclosure. A limitation is the research focusses on financial planning practices and not client outcomes, which could be considered in future research.Originality/valueThe study adds to the understanding of how disclosure is used as a governance tool and how the quantity of information may impede the effectiveness of disclosure in the financial planning industry. In addition, the study identifies and elaborates on the influential factors and best practices for enhancing the disclosure effectiveness by financial planners.

Gamification of financial applications and financial behavior of young investors

PurposeThis study aims to investigate the moderating role of gamification on the relationship of financial attitude (FA), financial self-efficacy (FSE) and financial planning activity (FPA) of individuals on the financial behavior of individuals and also provides a conceptual background on financial management behavior (FMB), FA, FSE and FPA of individuals.Design/methodology/approachA preliminary study with the help of a structured questionnaire was conducted by administering the questionnaire to individuals who are exposed to financial apps on their smart phones or personal computers for various money-saving and investment activities. Help of various financial planners and financial consultants led to successful circulation of the questionnaire to respondents. The research model was tested through structural equation modeling using AMOS-21 software. Firstly, a measurement model was evaluated that comprised five latent constructs, i.e. gamifying features (GF), FA, FSE, FPA and FMB. Subsequently, the structural model consisting of the hypothesized relationships was evaluated.FindingsThe role of GF in financial apps and applications in moderating the influence of FA, FSE and FPA on FMB has not been thoroughly studied in the past literature, and the results of this study show that GF significantly moderate the influence of FA and FPA on the FMB of individuals. However, according to the results GF in financial apps do not have a significant moderating role on the influence of FSE on FMB of individuals.Originality/valueThe studies in the past have not investigated the role of gamification in the area of personal finance of individual investors, specifically their financial behavior in both developed and developing countries. This study addresses this gap by examining the role of gamification in moderating the relationship that exists between FA, FSE, FPA and financial behavior.

Occupational boundaries: Gender capital and career progression in the financial planning industry

AbstractGender inequality and occupational segregation in Australian financial services present a stark disparity, with men working as financial planners and women being over‐represented in lower‐paid administrative positions. This article uses a gender capital theoretical framework to examine gender segregation between financial planning and paraplanning occupations. Analysis of interviews with 26 financial professionals suggested that masculine capital, including confidence and persuasive soft skills, marked success as a financial planner. Feminine capital, including organizational skills, was aligned with the role of paraplanner. These findings contribute a new perspective on why gender segregation occurs in financial planning. These findings bear relevance as financial planning professionalizes.

Impact of the new middle class on consumer behavior: a case study of Delhi-NCR

PurposeThe paper examines the increase in annual income of the new middle-class (The NMC) of Delhi-NCR and its impact on their investment habits, consumption habits and lifestyle. The paper aims to look into the transformation of the new middle-class into the NMC in emerging economies and its potential to the companies and investors.Design/methodology/approachThis study draws insight from 558 new middle-class consumers in Delhi-NCR. ANOVA, post hoc tests , and hierarchical multiple linear regression model are applied to test the proposed hypotheses.FindingsThe NMC living in India's megacities imitates the lifestyle of their counterparts living in the West. To maintain their status and present themselves different from those living in middle or lower-middle-class categories, they spend audaciously, even though the income is low. When they enter the new middle class, their consumption, saving and lifestyle diversify positively.Research limitations/implicationsThis study has limitations. First, the authors do not apply any behavioral theory or marketing model such as the theory of reasoned action (TRA), Engel-kollat-Blackwell (EKB) model or theory of normative model of target markets. Second, the research is limited to the NMC of only one emerging economy, i.e., India. Third, the research sample is limited to only one megacity of India, i.e., Delhi. Finally, this research used only one factor, i.e., AI, to study the consumption pattern.Practical implicationsThe results suggest that considering the buying habits and lifestyle of Indian the NMC, consumers would prove helpful to the companies in product decision-making. Furthermore, understanding change in investment habits across different income levels would be advantageous to financial institutions, investment planners and marketers while designing their products to attract investment.Originality/valueThe research holds significance from the point of view of understanding Indian consumers encompassing the the NMC and predicting their implications on consumer goods-producing industries, which shall, in turn, facilitate producers and government in formulating policies and strategies.

UTILIZATION OF REMITTANCES ON HOUSE CONSTRUCTION: GROUND REALITIES AT VILLAGE KHOHAR DISTRICT GUJRAT, PUNJAB PAKISTAN

Purpose of the study: This study aims to find out local perception for utilization of remittances on the construction of luxurious houses in Village Khohar. Further, it aims to document the causes of international migration from this village. This study focuses on the chain migration from Pakistan to South Africa and to highlights the socio-economic status attached with showoff wealth through the construction of luxurious houses. Methodology: For this study qualitative anthropological research methods including in-depth interviews; informal discussions; and focused group discussions were used to collect empirical data. For this study, 23 migrants were selected through purposive sampling. In-depth interviews were conducted from the selected population for which a semi-structured interview guide was used. Main Findings: There is a history of migration from this village, residents of the village migrate and financially contribute to their left-behind families. The migrants spent billions of rupees on the construction of luxurious houses in which their left-behind family members live a comfortable life. The geographical and environmental reasons are important factors for international migration. Applications of this study: This study can help academicians, researchers, demographic experts, financial planners as well as policymakers to understand the factors associated with international migration along with the local perceptions about showoff wealth through the utilization of remittances. This study will also be valuable for the remittances beneficiary countries like Pakistan. Novelty/Originality of this study: Wealth is a symbol of status in traditional areas of Pakistan. The showoff wealth is associated with prestige. This topic is novel in terms of traditional and cultural practices for the utilization of wealth (remittances) on the construction of luxurious houses. The subject of this study was underexplored in the context of Pakistan in terms of the symbolic relationship between prestige and construction of luxurious houses.

Social Capital Theory, Social Exchange Theory, Social Cognitive Theory, Financial Literacy, and the Role of Knowledge Sharing as a Moderator in Enhancing Financial Well-Being: From Bibliometric Analysis to a Conceptual Framework Model.

A person’s financial well-being (FWB) is the complete contentment gained from one’s present financial condition. This has a powerful impact on the entire achievement of an employee’s “well-being.” Researchers, financial analysts, financial planners, educationists, and economists have explored the “enablers” to improve employees’ living standards by investigating the possible “FWB” resources for decades. There is no literature available to show the connection between social capital theory, social exchange theory (SET), social cognitive theory (SCT), financial literacy and FWB, and employees’ financial knowledge sharing a moderator to expand the complete FWB.

The Association Between Retiree Migration and Retirement Satisfaction

The purpose of this study is to examine migration during retirement and its association with retirement satisfaction. Utilizing longitudinal data collected from the Health and Retirement Study, this study estimates a fixed-effects logit model to examine how changing U.S. Census divisions during retirement is related to retirement satisfaction. The findings suggest that a change in residential location during retirement is associated with an increase in retirement satisfaction. In planning for retirement, individuals should examine what will provide them with the highest level of satisfaction during their retirement and whether their current location can facilitate an enjoyable retirement. Financial planners and counselors should also consider, as a part of their systemic retirement planning process, increasing the attention that is given to the residential location in which their clients will reside during retirement.

재무설계서비스에 대한 소비자의 지불의사금액 추정:누가 재무설계를 이용하는가? 폭넓은 소비자층 수용을 위한 소비자요구 분석의 필요성

재무설계서비스에 대한 소비자의 지불의사금액 추정:누가 재무설계를 이용하는가? 폭넓은 소비자층 수용을 위한 소비자요구 분석의 필요성

Dynamic Interaction Between Nifty 50 and Nifty Sectoral Indices: An Empirical Study on Indian Stock Indices

This study aims to determine the cointegrating and causal relationship between Nifty 50 and Nifty sectoral indices. Historical index data of the select indices were collected from the National Stock Exchange (NSE) database for the period Jan 2014 - Dec 2018. Appropriate Econometric tools - Augmented Dickey-Fuller (ADF) test, Phillips and Perron (PP) test, regression model, Granger causality test, and Johansen cointegration test were used to analyze the data. The findings of the study imply that the movements of Nifty sectoral index prices could determine the flow of stock index prices, i.e., Nifty 50 and vice versa during the period of the study which could also help the policymakers and financial planners in providing financial awareness to investors and clients in decision making.

Can Low Retirement Savings Be Rationalized?

Simple presentations of the life cycle model often suggest a constant level of real consumption in retirement. Similarly, financial planners commonly suggest that people save for retirement in such a way as to enable them to maintain a level retirement standard of living equal to their standard of living while working. However, constant consumption with age is only optimal under the precise and unlikely condition that the subjective rate of time preference is equal to the real interest rate. Most people exhibit a positive rate of pure time preference, and additionally discount the future by both mortality and morbidity risks. In comparison, the real interest rate is roughly 0%—and the term structure of interest rates suggests this condition is likely to persist. These considerations suggest that optimal consumption in the life cycle model declines with age. This finding has major implications for optimal retirement saving. For instance, we find that for many, perhaps most, people in the bottom half of the lifetime earnings distribution, it is optimal to spend out their retirement wealth well before death and to live on Social Security alone after that. Very low earners may find it optimal to not engage in retirement saving at all. <b>TOPICS:</b>Long-term/retirement investing, portfolio theory <b>Key Findings</b> ▪ Under plausible assumptions, optimal consumption in the life cycle model declines with age. ▪ For many people in the bottom half of the lifetime earnings distribution, it is optimal to spend out retirement wealth well before death and live on Social Security alone after that. ▪ These results stand in contrast to standard financial planning advice that people save for retirement in such a way as to enable them to maintain a level retirement standard of living equal to their standard of living while working.

Differences in the Determinants of Retirement Preparation between Farm and Nonfarm Households

As principal farm operators age, retirement and succession planning has become increasingly important to the U.S. agriculture industry. This study examined differences in the determinants of retirement preparation between farm and nonfarm households using the Survey of Consumer Finances. Factors such as risk preferences, financial capability, human capital, and other demographic characteristics of farmers that may play a role in their decision to plan for retirement were examined. Retirement planning was investigated by running three separate sets of logistic regressions on the overall sample, farm households, and nonfarm households. Likelihood of consulting a financial planner, expecting to leave a bequest, and household net worth were used as dependent variables. Results indicate some significant differences between farm and nonfarm households and highlight limitations in currently available data sets for studies such as this one. Implications for practitioners, researchers, and policymakers regarding farm family retirement and succession planning are discussed.

What is failing us? An examination of diversity initiatives in financial planning

AbstractThis paper examines the lack of diversity in the financial planning profession by expanding the variable focus to include both the household side (i.e., consumer demand for financial advice) and the aspiring and existing financial planner professional side (i.e., the supply of financial advice). This study uses data from 13,507 households from the 2004 to 2016 waves of Survey of Consumer Finances (SCF) and data from 37,665 students enrolled at the College for Financial Planning for 2005 to 2018. We found that any amount of racial bias against non‐White financial planners could substantially reduce their market. Previous studies have focused almost exclusively on macro‐demographic comparisons. Therefore, reliable information on the extent of racial bias and satisfaction among racially discordant financial planner‐client relationships is not available. Black and Latinx households lag White and other households to attain high school diplomas and undergraduate degrees, partially explaining the lack of a diverse pipeline into the profession. We argue that there continues to be a need to eliminate survivorship bias when attempting to understand the realities faced by non‐White financial planning professionals by surveying those who were not successful in becoming financial planners.

Financial risk attitudes, demographic profiles, and behavioural traits: Do they interrelate?

Research aim: The paper addressed two objectives: examining the differences in behavioural traits with regard to risk attitudes, and explore the differences in financial risk attitudes with regard to demographic profiles of Malaysian investors.Design/ Methodology/ Approach: Using the t-test and one-way analysis of variance (ANOVA), this paper investigates how differences in behavioural trait bias among 241 master of business administration students in Malaysia affect their financial risk attitudes.Research finding: First, we find that the financial risk takers have higher levels of overconfidence, maximization, happiness, and trust than the risk-averse respondents. Second, in terms of demographics, we find that the following take significantly higher risks: men versus women, singles versus those who are married, and, those with lower income and less work experience. Besides, in terms of race, the Chinese are the greatest financial risk takers.Theoretical contribution/ Originality: Both the behavioural traits and financial risk attitudes are new for a multicultural background market like Malaysia. Reflections on the findings suggest that the financial planners need to take cognisance of such relationships, tendencies and risk preferences so as to understand their client inclination and provide appropriate advice to their investor clients.Research limitation/ Implication: Categories under the research design and sample selection can be further extended by considering more advanced research approach and a bigger size of sample respondents.Keywords: Behavioural Finance, Behavioural Traits, Risk Attitudes, Financial Risk, Demographic ProfilesType of article: Research paperJEL Classifications: D14, D91, G41Received: 31 January 2020Revised: 15 April 2020, 24 April 2020Accepted: 6 May 2020Published online: 29 January 2021

Exploring Relationships Between Technology Use and Time Spent in the Financial Planning Process

Using a nationwide online survey capturing detailed information on the backgrounds and practices of 654 financial planners, this study examines the associations between the use of technologies by financial planners and self-reported time spent within various stages of the six-step financial planning process. Surprisingly, in many cases, use of technology is associated with an increase rather than a decrease in time spent within various stages of the financial planning process. These results suggest that although technologies may provide efficiencies in completing certain tasks, these efficiencies do not necessarily result in net reductions in time spent within the financial planning process.

Relationship of the Big Five Personality Traits and Risk Aversion with Investment Intention of Individual Investors

This empirical research is aimed at testing the relationship of the big five personality traits namely openness to experience, extraversion, consciousness, agreeableness, neuroticism, and risk aversion with the investment intention of individual investors belonging to Balochistan, Pakistan. The primary data is collected through a self-administered questionnaire (a structured form that consists of a series of closed-ended and open-ended questions) from a sample of 397 active individual investors belonging to different districts of the province. The data is empirically analyzed by applying the Partial Least Square (PLS) path modeling technique by using the estimation package available in Smart-PLS. The findings of this study suggest that all the variables are statistically significant with investors' investment intention with risk aversion as the strongest predictor. Moreover, openness to experience, extraversion, consciousness, agreeableness, and risk are significantly and positively related to an investor's investment intention, whereas neuroticism is negatively related to an investor's investment intention. The results extended by this study can be used by financial planners and investment bankers to channelize the available financial resources in diversified portfolios. The results will help financial planners to make available diverse investment alternatives for investors in Balochistan, thus catering to their unique needs. Academia must offer courses on contemporary finance paradigm based on behavioral finance to enable future business graduates to make wise financial decisions.

ISLAMIC WEALTH PLANNING: THE DEVELOPMENT OF INSTRUMENT

The purpose of this paper is to develop new instrument that measures the Islamic wealth planning concept based on the Islamic literature. The concept was conceptualized and transformed into an instrument based on two methods, namely experts’ validity (using Lawshe’s technique with eight Malaysian certified Islamic financial planners and two representatives from the official Islamic religious departments in Kedah and Perlis states/Malaysia) and focus group session with seven experts in several related areas, i.e. Islamic philosophy, Islamic finance, and Islamic financial planning. This paper used a quantitative approach using questionnaire. The developed instrument was then distributed to 120 respondents to further improve its validity and two analyses were performed: reliability analysis and exploratory factor analysis. The finding of this study is a new validated instrument for the concept of Islamic wealth planning which contains two main sections, i.e. worldly financial planning and hereafter financial planning. The first section consists of income/investment planning, retirement planning, education (for the individual) planning, and Takaful/insurance planning, while the second section consists of education (for his/her family) planning, Faraid planning, Wasiyyah planning, Zakat/taxes planning, Hajj planning, Hibah planning, Waqf planning, and charitable financial planning. This paper contributes to the existing scarce studies in the area of Islamic wealth planning and management. In addition, this study contributes in transforming the Islamic wealth planning concept into a measurable instrument that can be used for several parties such as Islamic financial planners, high net worth individuals (HNWI) as well as middle class individuals, Islamic financial institutions, and researchers.

Financial Risk Tolerance Before and After a Stock Market Shock: Testing the Recency Bias Hypothesis

Is there an association between a household financial decision maker’s risk tolerance and the performance of the stock market? Some researchers argue that financial market events have little association with the financial risk tolerance (FRT) of household financial decision makers, while others argue that FRT among individuals can vary in relation to significant market fluctuations. The applicability of either argument may depend on the length of the period before and after a major market event. The purpose of this study was to evaluate aggregate changes in FRT around a major stock market event for different anchor time periods and to test the recency bias hypothesis. The analyses were designed to explore the FRT of Americans during a volatile multimonth period of stock market performance in 2018–2019. Several univariate, bivariate, and multivariate tests were used to compare FRT assessment scores pre- and post-October 3rd, 2018 (i.e., the market high in 2018). A decrease in FRT from the market high was noted across the sample; however, the decrease was exhibited most acutely by younger, nonmarried respondents with few investable assets. A noteworthy finding from this study is that financial counselors and financial planners likely serve a “buffering” role when household financial decision makers experience stock market shocks.

Household finances, financial planning, and COVID‐19

This article provides a brief summary and review of the impact of the COVID‐19 pandemic on household finances. The stressors related to the pandemic are evaluated as either transitory or permanent shocks to both the practice of financial planning and client financial concerns. Based on qualitative responses from practicing financial planners, changes in practice and client concerns as a result of the pandemic are outlined. At the global level, respondents shared that the practice of financial planning has accelerated its adoption of communication technology while clients are experiencing unprecedented levels of stress related to changes in health, the economy, and the political landscape in the United States. Insights and observations from the sample of practicing financial planners are used to inform recommendations for practice.