Dollar for dollar: Consumers willing to pay more for financial advisers with designations

June 28, 2018

URBANA, Ill. - Whether it's buying a car, purchasing a home, or preparing to start a family, consumers are faced with many financial decisions throughout their lives. They turn towards advisers to help manage and guide their finances. But how do consumers decide which planner to trust?

A new study from the University of Illinois investigates the value consumers place on financial advisers based on their credentials. Craig Lemoine, associate professor in the Department of Agricultural and Consumer Economics at the U of I, director of the department's financial planning program, and a co-author of the study explains the theory that people typically pay more for more qualified consultants. But the notion has never been backed up by data.

"In financial planning, we teach the idea that you should be certified in the area you plan on practicing," Lemoine says. "It's the standard of practice the industry has been following since the late 1970s, but do consumers find an actual value?"

Participants in the study were arranged by income, age, and investable assets, and were also required to work with a Financial Service Professional (FSP). These advisers were then grouped based on their professional designation or lack thereof.

In a survey, consumers were asked if they value financial services differently when they receive them from financial professionals holding certifications/designations versus those who do not. Based on the results, consumers who made more money in their jobs were willing to pay more for a FSP with credentials.

"That's very important because we look at compensation models and how we charge people," Lemoine explains. "Financial planners typically charge a fee based on the amount of investments we manage, charge flat fees, or earn a commission on the sale of a product. It's great to see that consumers understand the relationship between complexity and compensation."

Another result from the study was based on age - younger individuals were willing to pay more for advisers with credentials than their older cohorts.

"The conclusion we came to in this article was that younger consumers need more help because they might not have the same financial literacy than an older consumer," Lemoine explains. "You might just see a willingness to pay for service in today's generation that you didn't see in the past."

So should financial advisers work to attain credentials?

Sterling Raskie, lecturer of finance in Gies College of Business and leading author of the study, says credentials would be beneficial not only for the consumer but the financial adviser as well.

"From a financial standpoint, consumers who value designations have higher incomes and investable assets which may lead to increased compensation for advisers. Additionally, financial service professionals can use this study as a way to highlight their skills as augmented by their designations."

Lemoine agrees, "Consumers report they are more satisfied with the individuals that are certified than if they are not. If you want to make more money and you want happier clients, there's definitely a march towards certification."
The study, "The value of financial designations: a consumer perspective," is published in the Journal of Financial Planning. Co-authors include Sterling Raskie, Jason Martin, Craig Lemoine, and Benjamin Cummings.

Lemoine is a clinical associate professor in the Department of Agricultural and Consumer Economics in the College of Agricultural, Consumer and Environmental Sciences at the University of Illinois. He is director of the financial planning program in the department.

University of Illinois College of Agricultural, Consumer and Environmental Sciences

Related Consumers Articles from Brightsurf:

When consumers trust AI recommendations--or resist them
The key factor in deciding how to incorporate AI recommenders is whether consumers are focused on the functional and practical aspects of a product (its utilitarian value) or on the experiential and sensory aspects of a product (its hedonic value).

Do consumers enjoy events more when commenting on them?
Generating content increases people's enjoyment of positive experiences.

Why consumers think pretty food is healthier
People tend to think that pretty-looking food is healthier (e.g., more nutrients, less fat) and more natural (e.g., purer, less processed) than ugly-looking versions of the same food.

How consumers responded to COVID-19
The coronavirus pandemic has been a catalyst for laying out the different threats that consumers face, and that consumers must prepare themselves for a constantly shifting landscape moving forward.

Is less more? How consumers view sustainability claims
Communicating a product's reduced negative attribute might have unintended consequences if consumers approach it with the wrong mindset.

In the sharing economy, consumers see themselves as helpers
Whether you use a taxi or a rideshare app like Uber, you're still going to get a driver who will take you to your destination.

Helping consumers in a crisis
A new study shows that the central bank tool known as quantitative easing helped consumers substantially during the last big economic downturn -- a finding with clear relevance for today's pandemic-hit economy.

'Locally grown' broccoli looks, tastes better to consumers
In tests, consumers in upstate New York were willing to pay more for broccoli grown in New York when they knew where it came from, Cornell University researchers found.

Should patients be considered consumers?
No, and doing so can undermine efforts to promote patient-centered health care, write three Hastings Center scholars in the March issue of Health Affairs.

Consumers choose smartphones mostly because of their appearance
The more attractive the image and design of the telephone, the stronger the emotional relationship that consumers are going to have with the product, which is a clear influence on their purchasing decision.

Read More: Consumers News and Consumers Current Events is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to