However , those who have actually demonstrated higher investing knowledge through testing ended up paying lower fees than those who scored lower .

“ Our analyses indicate that investors with higher levels of objectively measured investing knowledge reported paying lower fees , while those who have higher levels of self-assessed investing knowledge reported paying higher fees ,” said the report , released by the Finra Investor Education Foundation in early October .

On average , investors who rated their investing knowledge at 5.43 on a scale of 1.0 to 7.0 paid 4 % or more in fees , while those who rated their investing knowledge at a lower level paid less . Those who put their knowledge at an average level of 4.96 , for example , reported paying fees of under 0.5 %.

“ This new study gives us even more evidence that bolstering investing knowledge , while also helping investors understand the potential limits of their knowledge , is vital to improving investors ’ outcomes ,” says Gerri Walsh , the foundation ’ s president . “ As the financial landscape becomes more complex with product offerings and investment choices , it remains important for investors to understand the relationship between fees and returns .”

The researchers noted that it ’ s possible investors may in some cases not be aware of the true fees they are paying . “ Since the fees are self-reported , it is possible that investors with lower objective investing knowledge are not actually paying higher fees but are simply miscalculating / misestimating the fees paid ,” the report said .

As a result , investors with high self-assessed investing knowledge may be more inclined to pay higher fees , even though investment performance has been linked to lower loads and expense ratios , researchers said .

In addition , some investors may knowingly pay higher fees for reasons of their own , such as the desire to work with a specific financial professional or for a specific risk-reward trade-off , Finra said .

According to research , when investors are shown summary prospectuses about their investments they tend to focus on returns . The Finra researchers suggested that firms encourage their advisors “ to use tools that easily compare and analyze the costs and

According to research , when investors are shown summary prospectuses about their investments they tend to focus on returns .

potential returns of various mutual funds , ETFs , and other investment options , while taking into account the impact of fees on overall portfolio performance .”

One useful tool is the Form CRS , which can prompt a discussion about how fees and costs will affect performance . One question investors might ask advisors : “ If I give you $ 10,000 to invest , how much will go to fees and costs , and how much will be invested for me ?”

— Tracey Longo

Hope For Younger Earners — With A Catch

Among early millennials ( those age 37 to 41 ) and Gen Xers ( those age 49 to 53 ), middle and affluent earners were more likely to be on track to replace a greater portion of their retirement income .

In the affluent 70th percentile of earners , early millennials were on track to replace 66 % of pre-retirement income , while Gen

Xers could replace 53 % and late baby boomers only 51 %. That ’ s still short of Vanguard ’ s estimate of 68 % of pre-retirement income for the cohort ’ s spending needs .

In the middle 50th percentile of earners , early millennials were on track to replace 58 % of their pre-retirement income , while the number was 52 % for Gen Xers and 50 % for late baby boomers — far short of the

83 % of pre-retirement income Vanguard estimates that these cohorts will need .

Fortunes may also shift if markets fall or Social Security is cut . A 23 % benefit cut in the next decade would take nine to 10 percentage points off the amount of pre-retirement income these groups are able to replace , Vanguard says .

— Christopher Robbins

NOVEMBER 2023 | FINANCIAL ADVISOR MAGAZINE | 13