Customer Intention to Save for Retirement Using a Professional Financial Services Planner

Historically the Australian government has had a major role in the expansion of the financial services industry through the development and implementation of legislation designed to protect customers and strengthen the industry (Cull, 2009). While Australia suffered considerably less than many other countries during the Global Financial Crisis (GFC) 2007-2009, its impact was still felt, indicated by a slowing in the economy, a rise of two per cent in unemployment, a large decline in equity prices, and a reduction of household wealth by nearly 10 per cent by March 2009 (ABS, 2011). The collapse of Storm Financial, a financial planning firm based in Queensland that lost almost A$3 billion in investor funds and leaving many of those investors destitute, led to a parliamentary joint committee enquiry (Washington, 2010; McKeown, 2012). As a result of that enquiry, in 2012 the Australian government introduced the Future of Financial Advice (FoFA) reforms, designed to give greater protection to retail investors, as well as ‘ensure the availability, accessibility and affordability of high quality financial advice’ (The Treasury, 2016), with compliance to these reforms mandatory from July 1, 2013.

Obtaining professional advice has been found to be beneficial, and yet the industry has had a difficult and troubled past, with perceptions of the industry negatively impacted (Robertson, 2015). Consequently, the research question and focus of this study is: RQ:

What are the main factors that influence a customer’s intention to use a financial planner and/ or accountant to assist with saving for retirement?

A unique attribute of saving for retirement is that it involves making a decision about purchasing saving or investment products and services in the present, the benefits of which will only be realized in the distant future. In making that decision, a person must simultaneously choose to forego purchasing other goods or services that will provide more immediate rewards, such as a holiday, a new car or a new sound system.

Financial planners have a role in both assisting with explaining investment product information and developing retirement savings plans. It has been found that financial advisers are an important information source when consumers are seeking knowledge on credit and investment-based products (Howcroft, Hewer and Hamilton, 2003), with another study revealing that planning affects wealth (Lusardi and Mitchell, 2007b). A study by Loibl and Hira (2009) found that the less involved customer (i.e., the customer least likely to seek information) is more likely to use the services of a financial planner for investment decision-making. Other research by Hira, Rock and Loibl (2009) suggests that among other variables, planning for retirement, having financial knowledge and a strong internal locus of control were significant contributors to maximizing retirement contributions. Literature reveals that subjective knowledge (as opposed to objective knowledge and experience) (Flynn and Goldsmith, 1999; Grace, Weaven and Anderson, 2008; Hershey and Mowen, 2000; Howlett, Kees and Kemp, 2008), goal clarity (Canova, Rattazzi and Webley, 2005; Crespo, del Bosque and Sanchez, 2009; Featherman and Pavlou, 2003; Lee, 2009; Stawski, Hershey and Jacobs-Lawson, 2007), and perceived risk (Llewellyn, 2005; Mitra and Reiss, 1999) are all significant contributing factors to whether or not a person saves.

In his review of the relationship between intention and behaviour, Sheeran (2002) suggests that behavioural intentions ‘are people’s decisions to perform particular actions’ (p. 2). Intentions are indicative of how hard people are willing to strive, and the effort they are planning to exert to undertake the behaviour (Ajzen, 1991). Consequently, the stronger the intention to perform a particular behaviour, the greater the likelihood that the behaviour should actually occur.

The intention construct is central to theories concerned with attitude-behaviour relations and therefore to the development of a model in the context of this study (Sheeran, 2002). Of the theories and models developed to examine the attitude-behaviour relationship, it would appear that asking people how they intend to behave is the conduit to knowing how they will actually behave. Evidence for this exists in numerous studies that have demonstrated the effectiveness of measuring intentions as a predictor for a range of different behaviours (see Ajzen, 2005 for a summary).

Self-efficacy is a measure of an individual’s perception of their ability to perform the behaviour (e.g., I am confident that I have the skills and ability to perform the behaviour) (Norman and Hoyle, 2004). According to Bandura (1977), whether or not people avoid or become involved with activities or behaviours depends on whether or not they consider themselves able to cope with or handle the particular task. Furthermore, both the amount of time and the effort people use to overcome difficulties or challenges associated with the task will be governed by their confidence in their abilities. As Bandura and Locke (2003, p. 97) state: “One cannot execute well-established skills while beset with self-doubt. In applying what one knows, a strong belief in one’s performance efficacy is essential to mobilize and sustain the effort necessary to succeed”. It has also been found that self-efficacy has a positive influence on accepting a difficult or challenging goal (Bandura and Jourdan, 1991; Bandura and Locke, 2003; Schwarzer, 1999; Vancouver, Thompson and Williams, 2001). However the relationship between goals and behavioural intentions, and goals and attitudes in the context of using a financial planner and/or accountant to assist with retirement savings plans is unexplored and therefore forms part of this study. On this basis, the following is hypothesised: H1a:

Greater self-efficacy positively influences behavioural intentions towards using the professional services of a financial planner and/or accountant to save for retirement.

A body of research exists that explores the role of goals on behaviour (Bagozzi and Dholakia, 1999; Dewitte, Verguts and Lens, 2003; Gollwitzer, 1993 and 1999). It has been found that people who think ahead are inclined to have savings plans (Grace, Weaven and Anderson, 2008; Rabinovich and Webley, 2007). Furthermore, Stawski, Hershey and Jacobs-Lawson (2007) found that retirement savings planning was predicted by retirement goal clarity, with planning then predicting involvement in the savings process. In the context of planning, financial literacy and housing wealth, planning has been shown to affect wealth (Lusardi and Mitchell, 2007a). That is, the more an individual plans, the greater their wealth. These precedents lead to the following hypotheses with respect to goal clarity and using the services of a financial planner and/or accountant to assist with saving for retirement: H2a:

Increased goal clarity positively influences behavioural intentions associated with using the professional services of a financial planner and/or accountant to save for retirement.

There is a comprehensive body of literature that explores the attitude concept (Ajzen, 1991 and 2005; Cohen, 1972; Eagley and Chaiken, 1993; Fishbein and Ajzen, 1975) and its impact on consumer behaviour. Studies have also provided empirical support for the link between attitudes and intentions (Ajzen, 1988 and 1991). Furthermore, Armitage and Conner’s (2001) meta-analysis revealed that attitude was a strong predictor of variance in intentions. This is substantiated in numerous studies (Fitzmaurice, 2005; Louis, et al., 2007; Smith, Terry and Hogg, 2006) that have shown attitudes are positively related to behavioural intentions. The role that attitudes have on behavioural intentions associated with using the professional services of a financial planner and/or accountant to save for retirement is unknown and is therefore investigated in this study due to its demonstrated impact on people’s behaviour in previous studies. H3:

Greater positive attitudes positively influence behavioural intentions associated with using the professional services of a financial planner and/or accountant to save for retirement.

Financial literacy is essential to making reasonable financial decisions (Lusardi and Mitchell, 2011). It has been found that subjective knowledge influences customer acquisition of financial products (Howcroft, Hewer and Hamilton, 2003) and has a positive impact on attitudes towards investing (Stawski, Hershey and Jacobs-Lawson, 2007). Subjective knowledge has also been shown to have an effect on perceived risk (Laroche, Bergeron and Goutaland, 2003). Given these influences in previous studies it is expected that subjective knowledge will have a similarly positive influence on an individual’s behavioural intention to use a financial planner to save for retirement. H4a:

Greater subjective knowledge positively influences behavioural intentions associated with using the professional services of a financial planner and/or accountant to save for retirement.

The concept of perceived risk was first introduced by Bauer (1960) as an idea that he hoped would “at least survive through infancy” (p. 389). Subsequently, the concept has not only survived infancy but it has spawned a range of studies that suggest risk is a central construct for consumer theory (Conchar, Zinkham, Peters and Olavarrieta, 2004; Howcroft, Hewer and Hamilton, 2003; Laroche, Bergeron and Goutaland, 2003; Lovelock, 2001). When considering risk, it is noteworthy that it is perceived risk not objective risk that is studied (Mitchell, 1999), because as Bauer (1960) stated, “If risk exists in the ‘real world’ and the individual does not perceive it, he cannot be influenced by it” (p. 395).

In general, evidence indicates that intangible products, such as financial planning services have a higher degree of perceived risk when compared directly with goods (Laroche, Bergeron and Goutaland, 2003; Mitchell and Greatorex, 1993; Murray, 1991; Murray and Schlacter, 1990; Zeithaml, Parasuraman and Berry, 1985). On this basis, the following is proposed in the context of this study: H5:

Greater perceived risk of using a professional financial planner and/or accountant negatively influences behavioural intentions associated with using the professional services of a financial planner and/or accountant to save for retirement.

The above hypotheses are visualized in Figure 1.

Figure 1:

The method used to explore this model is described next.

An email with a self-administered URL-embedded Web questionnaire was sent to 10,370 members of The Australian Consumer Panel (an “opt-in” database panel owned and managed by the Online Research Unit (ORU), a member of the Association of Market & Social Research Organisations (AMSRO) and ESOMAR World Research) with 289 recipients qualifying. In order to participate in the survey potential respondents were required to meet two criteria. First, they had to self-report that they had spare money to save for retirement (SFR) over and above the compulsory superannuation guarantee levy (SGL) received from their employer. Second, they were required to have the intention of using a qualified financial planner and/or accountant to assist them to SFR.

The sampling population for the study was employed people in Australia aged between 30 and 65 years. This age range was selected on the basis that by age 65 approximately 67 per cent of men and 84 per cent of women in Australia have retired (ABS, 2009) and previous research has shown that people under the age of 30 are not actively engaged with the concept of saving for retirement (Rickwood and White, 2009). The chosen sample reflected the age and gender distribution of the Australian population as reported by the Australian Bureau of Statistics Census Data (ABS, 2011). The majority of respondents were married (61.6%). Furthermore, 41.5 per cent had either one or two children, 52.2 per cent earned $50,001-$90,000 per annum, and the household income was concentrated at the high end, with 57.1 per cent earning above $90,000 per annum. Of this sample, 86.2 per cent were wage/salary earners and 21.5 per cent had a bachelor or other degree level qualification.

The questionnaire was comprised of 51 questions, including three screening questions. Respondents who did not meet the criteria to continue through to the main survey were redirected to a screen to complete demographic data. Questions were grouped based on gathering the relevant information to analyze and test the role of the factors identified in the conceptual model, on behavioural intention. That is, attitudes (8 items), self-efficacy (7 items), financial and/or functional risk (7 items), perceived knowledge (8 items), and goal orientation (6 items). Additionally, nine questions were concerned with gaining insights to the behavioural characteristics of respondents associated with saving and their past use/experience of a financial planner/ accountant to assist with their financial savings plans. The purpose of the study was to determine the key drivers for individuals to save for retirement using the professional services of a financial planner and/or accountant. Consequently, screening for participants with an intention to use a financial planner enabled the researchers to understand the key drivers that correlated with that intention. While this eliminated the population that were not intending to use a financial planner, the study purpose was not to explore the barriers or hurdles to financial planner use.

With the exception of the items associated with behavioural characteristics, the scales used in the survey were based on instruments previously tested for reliability and validity in studies published in the existing literature. These were: attitudes scale (Ajzen, 2002); behavioural intentions scale (Ajzen 2002); self-efficacy scale (adapted from Manstead and van Eekelen, 1998; Norman and Hoyle, 2004; Povey, et al. 2000; Terry and O’Leary, 1995; Yi and Hwang, 2003); perceived risk scale (adapted from Featherman and Pavlou, 2003 and Lee, 2009); subjective knowledge scale (adapted from Flynn and Goldsmith, 1999); goal scale (adapted from Prestwich, Perugini and Hurling, 2008). Seven-point rating scales were used throughout the survey because they provide respondents with a broad enough range for discriminating between the two polar opposites, and it has been found that the interval between scale points is approximately equal (Osgood, Suci and Tannenbaum, 1957). The adjectives chosen to anchor the scales were determined logically based on previous research, and the results of pre-testing. The questions used to measure the constructs are provided in Appendix 1.

Data were analysed by structural equation modelling (SEM) to undertake a confirmatory factor analysis (CFA), assess the reliability and validity of the measurement scales, as well as to estimate and analyse the theoretical model guiding this study. The CFA fit well (RMSEA¹ < 0.10; NFI, IFI, TLI and CFI > 0.9. See Table 1). SEM is a multivariate statistical technique that combines the methods of multiple regression and factor analysis to simultaneously estimate a series of interrelated dependence relationships, and determines the extent to which a hypothesised model is consistent with the sample data (Byrne, 2001; Hair, et al., 2006).

SEM was considered the most appropriate quantitative technique for this study for three reasons. First, SEM can specify and estimate models with mediating variables between independent and dependent variables and thus be able to overcome the limitation of many multivariate techniques of only being able to address a single relationship at a time (Byrne, 2001; Hair, et al., 2006). Second, SEM allows for multi-item scales and can reduce the measurement error allowing the researcher to assess the strength of relationship between any two factors (Hair, et al., 2006). Finally, SEM enables testing and defining of theoretical models, particularly those that contain latent construct factors (Anderson and Gerbing, 1988; Hair, et al., 2006).

Parameter estimates and critical ratio values in the CFA all loaded higher than 0.50 and were statistically significant (p<0.05). The measurement scales used in this study exhibited internal consistency and reliability (all values for construct reliability exceeded Garver and Mentzer’s (1999) criterion value of 0.70). Additionally, the average variance extracted values for all constructs met the criterion value of > 0.50 (Fornell and Larcker, 1981; Garver and Mentzer, 1999). Discriminant validity was supported for all variables (the average variance extracted (AVE) for each construct exceeded the squared correlation between latent variables (Fornell and Larcker, 1981)).

Of the nine hypotheses proposed in the conceptual model (see Figure 1), five were supported by significant paths (see Table 2). The relationship between self-efficacy and behavioural intention and goal clarity were positive, as hypothesised. Similarly, goal clarity was found to have a positive relationship with attitudes, and equally attitudes had a positive relationship with behavioural intention. Subjective knowledge negatively influences the perceived risk associated with using the professional services of a financial planner and/or accountant to save for retirement as hypothesised. Of the four unsupported paths, two were found to be insignificant (the impact of goal clarity on behavioural intentions, and subjective knowledge on behavioural intentions), and two were statistically significant but not signed in the hypothesised direction (the relationship between subjective knowledge on attitudes, and perceived risk on behavioural intentions). Since these last two findings were not as expected it is suggested that further investigation is warranted and suggestions for further research are made in the conclusion to this paper.

For organisations, governments and financial planners seeking to encourage people to save for retirement this is valuable information as it can clearly guide any marketing or information campaigns undertaken. Providing aspirational images of what is possible without either firstly or simultaneously providing a means for a person to gain confidence about their abilities in this area may be ineffective in motivating a person to take action. Furthermore, based on our results, providing an environment and background that engenders a positive attitude towards saving for retirement with the assistance of a professional financial services planner, is also crucial for a person to do something in this area.

There are four ways in which self-efficacy can be built: personal experience; observing others; verbal persuasion; and a heightened emotional situation (Bandura, 1977). The most effective means of building self-efficacy is through personal experience, followed by observation of others. Consequently, providing a ‘free’ first consultation may assist in further encouraging individuals to utilise financial planning services. Developing and sharing case studies of individuals who have experienced the effectiveness of financial planning services would provide an indirect means of potential clients observing the impact of using a financial planner. Such case studies could be used online and in newsletters. These case studies could also be used to engage with government and organisations as they provide a practical way of demonstrating the effectiveness of financial planning. Raising awareness of the value of financial planners through advertising and communication campaigns could also build self-efficacy as campaigns could utilise story to demonstrate a heightened emotional situation or develop a scenario that emulates personal observation.

A key consideration for financial planners is that consumers are concerned about changing government rules and regulations regarding retirement savings (Rickwood and White, 2009). Unfortunately the global financial crisis impacted the trustworthiness of the financial services sector. In fact one study has revealed that financial services is the least trusted profession globally (Edelman, 2014). Past experience, current research and the findings from our study suggest that there is adequate knowledge, experience and evidence for the introduction of public policies and campaigns to be developed and executed designed to increase the population’s positive attitude towards, and sense of self-efficacy about, using a qualified professional financial services planner to save for retirement, including certification such as the Certified Financial Planner (CFP).

For organisations, governments and financial planners the key findings and critical outcomes of this research is that self-efficacy and attitudes have been found to be the key drivers for a consumer to save for retirement using the services of a qualified professional advisor.