Do Fees, Commissions Drive Bad Social Security Guidance? — Advisors' Advice

The retirement researchers David Blanchett and Jason Fichtner recently published an award-winning analysis about Social Security claiming, and their results quickly sparked a debate among financial advisors. Blanchett's and Fichtner's findings raise some uncomfortable questions about advisors' compensation models. Specifically, their paper considers whether advisors' focus on commissions and asset-based fees leads them to give suboptimal advice on Social Security claiming. Blanchett and Fichtner say the answer to this question appears to be yes, as the evidence suggests people who work with fee-based financial advisors do not show improved Social Security claiming behaviors. More importantly, those who work with commission-based brokers tend to claim on average two years earlier than the general population — despite having more assets and presumably more flexibility to delay claiming for a bigger lifetime benefit. Also eye-opening, according to the researchers, is that those who work with fiduciary financial professionals who are paid hourly for their services do in fact claim later. As Blanchett and Fichtner emphasized in an interview about the results, the nature of the data underpinning the research means it is impossible to know the underlying drivers of these decisions. However, they strongly believe it is likely that advisor compensation is "at least partially a consideration." The uncomfortable truth is that some financial advisors may be biased toward strategies that provide higher compensation — even if those recommendations are not in the best interests of their clients. Given these provocative findings, ThinkAdvisor conducted an informal survey of advisors working with the Financial Planning Association and the XY Planning network, soliciting their written feedback about the Social Security claiming research and their personal experience guiding clients in the claiming process. Some found Blanchett's and Fichtner's findings to be eye opening, while others raised some questions about the applicability of the results in practice, but they all offered insightful comments and words of wisdom for their advisor industry peers.