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Advisor Opportunity: Investors are Baffled by Bonds

By Hal M. Bundrick

NEW YORK (MainStreet)--With a bond market that's difficult to navigate, retail investors are lost, without a map and looking for direction. More than half of consumers (51%) will shop for the best price on a gas grill but only 17% will bother to shop for a bargain on a bond, according to a new study from Charles Schwab. In a fixed income market rocked by declining values and higher volatility, offering fixed income guidance may be a remarkable opportunity for financial advisors.

Even the 61% of consumers who describe themselves as proficient bargain hunters are stymied when it comes to buying bonds, even though most realize that the pricing of financial products vary greatly.

"In this low interest rate environment, consumers are hungering for yield. The more you pay for a given bond, the less yield you'll earn on it," says Peter Crawford, senior vice president at Charles Schwab. "The majority of retail investors are informed shoppers and know that bond pricing varies a lot from firm to firm, yet very few of them take the time to shop around."

The study revealed that consumers are highly likely to shop for the best prices for cars (80%), airline tickets (77%), HDTVs (71%) and gas grills (51%). And more than 90% of investors say they are confident in their ability to find the best price for these items.

But bonds are another matter.

"Fewer than one in five investors shop around for bonds, which we think has less to do with investor behavior and more to do with industry barriers that get in the way of investors' interests," says Crawford. "There is no industry standard for how bond prices are marked up, and as a result investors are unclear about how much bonds cost and uncertain about how to shop for the best prices."

It may be a teaching moment, perfect for the patient advisor. More than half (53%) of investors say they do not know how to get the best price on bonds and 43% say it is too complicated to comparison shop for bonds.

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