Biased Advice? The Relationship Between Financial Professionals' Compensation and Social Security Retirement Benefit Claiming Decisions

13 Pages Posted: 7 Mar 2024

Date Written: December 1, 2023

Abstract

Delayed claiming of Social Security retirement benefits is a widely touted strategy to improve retirement-income outcomes. In theory, households working with financial advisors should be more likely to claim later. However, delayed claiming reduces client assets up front and could negatively affect future advisor compensation, creating a potential conflict. This analysis uses data from the 2019 Survey of Consumer Finances to investigate if there is any link between claiming behaviors and the use of a financial advisor. We find that households working with a financial professional claimed benefits earlier than those without advisors, which is contrary to expectations. There were differences across advisor types. For example, households with higher levels of financial wealth—which would be expected to have more discretion about when to claim benefits—working with an advisor paid hourly, i.e., accountants, claimed benefits two years later than households working with a commission-based advisor, i.e., brokers. Although this analysis is descriptive in nature and it is not possible to determine the actual effect of advice on Social Security claiming decisions, it does at least indicate that the quality of advice around Social Security claiming decisions could vary by advisor type and that more research about these differences is warranted.

Keywords: Social Security claiming, advisor compensation, advisor fees

JEL Classification: G10, G11

Suggested Citation

Blanchett, David and Fichtner, Jason J., Biased Advice? The Relationship Between Financial Professionals' Compensation and Social Security Retirement Benefit Claiming Decisions (December 1, 2023). Retirement Management Journal, Vol. 12, No. 1, pp. 54-64, 2023, Available at SSRN: https://ssrn.com/abstract=4749066

David Blanchett (Contact Author)

PGIM ( email )

Prudential Tower
655 Broad Street, 19th Floor
Newark, NJ 07102
United States

Jason J. Fichtner

Bipartisan Policy Center ( email )

1225 Eye St NW
Washington, DC 20003
United States

HOME PAGE: http://https://sites.google.com/site/jasonjfichtner/

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