Retirement on the Eve of Destruction
The year is 1965. Vietnam, racial tension, and voting rights are all over the news and both the Cuban missile crisis and the assassination of President Kennedy are open wounds for most Americans. This is crazy, we’ve had enough, said the youth of America now also facing the draft for a conflict they decried. Songwriter PF Sloan put their anger to music with the “Eve of Destruction”. Radio stations around the world banned the tune and some in the media said it represented everything wrong with America’s youth.
That youth was the Baby Boomers. And they are frustrated again. This time the object of their wrath is not challenges to their youth, it is to their age. They are worried about being able to continue their independence in retirement. Why is this so complicated??
Beware the Boomer
The demographic wrecking ball of Boomerism has been steamrolling industries for sixty years. Ask Detroit, Sears, Sony, IBM (Wang?!) and AT&T (the original version). Don’t mess with these guys. They want it their way and they reward businesses that step up. If you don’t – ask Blockbuster or an Oldsmobile dealer what happens. Right, you can’t….
What is particularly interesting about the current environment is that as a society we possess insights and tools more advanced than at any time in our history and yet we continue to be dogged by a pace of change more consistent with our past. That feels to me like a “will” issue instead of a “skill” issue and therefore completely in our control.
Good Results on the Surface, Weakness Underneath
The pandemic has not helped. COVID accelerated some areas of demand – health care, retirement, virtual meetings and a hybrid workplace – but at the same time seems to have slowed the reaction time of companies, which depend more than they realized on in-person interaction. Inertia of existing systems and mostly supportive markets have been supporting company earnings, but the underlying weakness is clear when we examine organic growth. I’m not sure when and how corporate leaders will regain speed. Urgency is hard to muster when you have good earnings but the changes needed to adapt to hybrid work are underestimated.
Three Forces Already Ahead –
Three essential components of our advice world are now wildly changed from their status pre-pandemic and even from a few months ago. Reactions abound, but so far more talk than action.
- Investing – the ink is barely dry on most obituaries for the 4% rule and now there’s a 4% T-bill again and a 5% CD. Inflation is a lot higher but haven’t we seen this movie before? Wait a minute – no – most financial advisors have no experience at all with meaningful levels of lost purchasing power. Didn’t adjustable rate mortgages just reset to DOUBLE? Is my oil bill the only one that is significantly higher? And electric, and property tax, and eggs and just about everything you buy?? You know who does remember inflation? Baby Boomer retiree clients. And it’s a bad memory. The winner products will answer the questions being asked now by clients – What is the risk? How will this product help me achieve my objectives? Planning has replaced investing as the driver of retirement success, yet only a small minority of advisory firm clients nationwide say they have a financial plan. What are the chances an advisor can hold on to clients content not to know what they will need – until they need to know?
- Growing the Practice - Everyone’s talking acquisition. And that’s a strategy but it’s not organic growth. The lesson learned by other Boomerized industries is that when you start buying growth instead of creating growth you quickly lose the ability to create and to innovate. Big Pharma has this disease and it’s palpable. In a rip roaring bull market for the advice provided by good advisors (see more https://theexecutionproject.com/out-with-the-old-bull-in-with-a-new-bull/ ), good advisors and their firms are indeed winning business from competitors. What are they selling? Protection. Preservation of hard won gains, careful planning to survive retirement, limiting the risk of outliving your money, protecting against the costs of healthcare. “Growth” is a new game but the metrics of success are the same – if you aren’t earning net new assets (retention + consolidation) and higher share of wallet, you are in decline. Period. You don’t see Fidelity, Schwab, Vanguard buying books of business and laying off HQ staff. Just sayin’….
- Leading the Business – Holy cow. Where do you start with the new realities of business? Large firms and small have been turned upside down by workplace preferences, training challenges, development issues, diversity requirements and expanding customer service needs. Not to mention the retirement wave of older advisors and the lack of interest from young people. “Leading” is a much different vocation than “running” the business. The myriad demands of the current workplace have even the most skilled execs scratching their heads, which indicates real trouble for financial services types that are too often just older portfolio managers or sales folk. I saw a pretty solid investment firm nuke three long-time employees a few weeks ago because of “the market”. For the record, that market is still multiples higher than it was for nearly all of the careers of the terminated professionals. So what happened? Beware the “margin defenders” – they are the least capable of handling the new leadership realities. Remember when Ford President, Bob McNamara shot down the idea of smaller cars? Innovation, creativity, genuine interest in the business, genuine interest in people – all are characteristics of the new leader. If you don’t have what it takes, go back up to #2 above and find a buyer.
Pareto’s Revenge: Embrace the Middle
Savvy advisors and their firms are indeed on to these issues. We call those people “winners” because they look at the market realities and take action – and take advantage. GM vs. Toyota and BMW – how’d that turn out? Why is it that separate organizations of very smart people can “see” completely different future paths? Is it just their love of current success? One clue has always been to see not how the best clients are doing – or feeling or saying – but to look at the middle. How does the average client, the typical client, the median client fare in your current state? Too much focus on the top avoids the reality check of your depth and breadth. Even in a single advisory book. Retirement is a complex array of dates and needs that are defying many advisors’ ability to keep up. That’s trouble for sure – and a historic opportunity for growth minded professionals who are prepared to offer an alternative.
One Upping the Boomers
Destruction is only bad if the object of destruction is worth retaining. The 1965 song called out Vietnam, the draft, the threat of nuclear war, discrimination, Middle East conflict – nothing good according to most everyone of any age. 76 million American Baby Boomers would now add their fear of aging poorly and poor. But take note – the rising cohort of Millennials is actually bigger than the Boomers and has its own list of complaints including climate change and diversity. They will shape the world as their parents have with impacts already visible in banking, electronics and retailing. And they are new growing power in financial services.
Where Boomers and their Millennial kids are joining forces today is around simplicity of process and the assurance of better outcomes. The Boomers pressed for change like ATMs and toll free telephone numbers while their offspring double down on access and ease with mobile apps and simpler products. What Boomer expected brokerage commissions of zero and ability to send your own wire transfer? Millennials expecting both are also asking why can’t results be guaranteed? Every generation sees injustice in the current state and first finds its voice sharing its frustration with its parents. Demand more, they say – and they are right to expect better. Retirement is a family affair, and the Millennials will be riding shotgun for their parents and deciding which advisors and firms will be their choices when they have more assets. Top advisors seeking growth for years to come are including these important consumers into the plans of their current clients and have the lead for retention and future growth. Follow another winning consumer formula – simplicity and ease of use – and see how Apple products appeal to both generations or how easy both find the Minute Clinic at CVS.
JOIN US February 21 in Brooklyn as we take on Investing, Growth and Leadership at Retirement on the Eve of Disruption, presented by Next Chapter and Financial Advisor
Finding Jackie
Jackie is the ideal client. She is busy with her family and friends, she doesn’t have time for worrying about the markets. She trusts her financial advisor, Anna. Her savings are divided among a managed account and annuities. She collects Social Security. Her adult children all work with her advisor. She loves spending time with her grandchildren and she does not know who Jerome Powell is or where the Dow ended yesterday. Jackie has financial peace of mind.
But Jackie was not always this content. She did not know Anna until her husband, Bill was diagnosed with terminal cancer.
Bill was an engineer. He built and repaired computers for fun. He did the taxes. He built a deck on the back of the family home for Jackie and the kids. He was a pretty good investor and always told Jackie, “Don’t pay fees”. He did not interact with the advisor assigned to his account – Anna – resisting all of her attempts to connect.
The diagnosis of multiple myeloma hit Jackie like a freight train. Busy with her children and her job in the local school system, she left all the financial and investment duties to Bill. She had never written a check. The implications of her forward path were now crashing down on her. She left her job to care for her husband.
Bill’s illness changed his view of Anna. He reached out to her and asked for a meeting – the first time Anna would meet Jackie. Jackie was apprehensive but Anna immediately put her at ease. Anna smiles when she shares the nickname given her by one of her clients, “Mama Bear”. Jackie would later tell me, “She saved my life”.
Bill helped Jackie understand the family financial picture, including the household expenses, checking and investment accounts – even the tax returns. They spent time together and with their adult children and grandchildren. Jackie built a crib for one of the babies under the watchful eye of Bill, who had grown too weak to do the work himself.
Bill’s initial longevity prognosis was 3-4 years. He and Jackie enjoyed seven years together – no doubt due to her attentive care and positive energy.
Jackie and Anna developed a trusting relationship. Mama Bear had never really connected with Bill – he was in her “book” but for sure reflected the definition of an “unengaged” client. Anna had never met Jackie or any of the couple’s four adult children. Bill rebuffed all of Anna’s offers of financial planning, as well as retirement investing ideas. He scorned fees of all kinds – and pointedly told Jackie never to invest in either a fee based managed account or an annuity.
Jackie was not Anna’s first widowed client, and also not the first to reveal a perspective about retirement investing much different from her spouse. Stung by the feeling of hopelessness when Bill first received his diagnosis, Jackie told Anna she wanted to make sure her children never worried about her. Jackie wanted as much structure as possible, she said, with very clear plans in place. Jackie and Anna agreed on managing Jackie’s assets with a combination of a managed account and two annuities.
Hiding in Plain Sight
Most financial advisors have a Jackie – actually more than one. But many of those Jackies are hidden from view because too many advisors know only Bill and never get the full family view. To be clear, Jackie’s Bill was equally to blame for Anna not knowing about Jackie and their kids. He had control and didn’t think he would lose it. Anna had asked, but was denied. After a point she simply stopped asking.
When we look more carefully at advisor productivity today, we see significant opportunity in that “unengaged” population. At Fidelity, my team estimated the potential untapped business at 75-80% of the total client book and assets roughly equal to the AUA already engaged with the advisor. That’s compelling – basically the chance to double AUA. Firms including Morgan Stanley have made the same analysis, drawn the same conclusions and are now pointing strategies to engage those clients. The ALI personas are in that effort.
We also know that many – maybe most? – advisors are not engaging fully with the family members beyond the primary decision maker. IWI published a survey before the pandemic that indicated clients WITH advisors said only 42% of advisors included their spouse in reviews and many fewer knew the kids. Considering the growing power of women as financial decisionmakers and the importance of Gen X, Y and Millennial inheritors, this seems like a practice management no-brainer.
The first step is to understand exactly who these unengaged people are and what would help them engage. Sometimes it’s offering a different product or service than the clients know you have, but most of the time the key is reaching out in a way that says you know who they are and what might they be looking for from an advisor. Anna didn’t know about Jackie, but Jackie wasn’t looking for Anna either – and didn’t know she would need Anna until of course she did. Jackie, like many unengaged family members, had no idea of what a financial advisor would do and was completely intimidated by what she thought she might have to know in order to not feel stupid or insecure in talking with Anna.
The Alliance for Lifetime Income has taken up the challenge of identifying Jackie and how to talk to her. The ALI has documented six “personas” all ideal for engagement around retirement income topics but often overlooked by advisors. It is telling that three of the six are women and the other three are couples. Advisory firms and financial professionals have confirmed these client opportunities and the ALI is working directly with national broker/dealers to better engage the six personas. See more here:
https://resources.protectedincome.org/personas.aspx
The rolling demographic age wave is still in its early stages, and the best opportunities for growing an advisory practice are right under the noses of even the very best financial professionals. Truly hiding in plain sight. They are all looking for more certainty, more structure, some tax benefits when possible and – most of all – someone who cares enough to come looking for them.
Steve Gresham is on a mission to improve the retirement outcomes for clients and make delivery easier for advisors and their firms. He learned at lot managing the relationship strategy at Fidelity Investments, where he was the evp and head of the Private Client Group. Now he leads an industry effort pointed at reimagining “retirement”, Next Chapter, with 60+ companies and 120 leaders, and a consulting firm that engages directly with top firms and broker/dealers, The Execution Project. See more at https://theexecutionproject.com/
2022 Year in Review
My longtime editor and friend, Evan Simonoff of FA asked me for a review of 2022.
Two words - “good riddance”. And I’m pretty sure I’m not alone.
My professional view has certainly been impacted by personal issues including Hurricane Ian, who left my 88 year old mother homeless despite an otherwise air-tight retirement plan. And I’m absolutely certain that anyone hating 2022 also has personal reasons. Isn’t that the COVID lesson - that work and home and family are integrated??
So with apologies to the strict business types, my Year in Review 2022 is a mixed bag of observations, potential trends, and lamentable realities. I want to acknowledge good works but they are currently overpowered by forces our industry continues to resist. We love the bull market fueled results - but that rising tide may have peaked. Time to plan accordingly. For good measure, I’ve made a list of 13. Lucky 13 - take that 2022.
- Inflation - OMG - okay, so I am starting with the most important one. Ken Dychtwald’s retirement research shows clients picked inflation as the runaway #1 worry. Significant because healthcare had dominated these surveys for years with no real challengers. But then again, inflation has been dormant. This is not historical reality, which is one reason why it is said of history that ignorance of its teachings leads to repeating the mistakes. As an industry sage, I am able to remember my first year in the markets as an intern when TBills were 15%. No typo here. The CPI took back 13.5% No typo there. $1 million nest egg paid you $150,000 risk free, state tax free, and with a modest real return. After Fed Chairman Volcker slayed the inflation dragon - my first year as an investment manager - 1982 - the asset class winner was the long 30 year Tbond at 52% total return. No typo there. But some great memories….The drivers of the New Inflation are here to stay for awhile - it’s not all monetary policy, which is now totally hackable by any hedge fund anyway. Structural issues will take years to resolve. Expect more trouble ahead.
- Airlines are not the same. For my travel money, Delta has its act together and it matters. Newbie on the block, Avelo, has made it easier to get to Baby Boomer retirement hot spots and most every plane is full. Some growing pains but keep going!
- We are not alone - the globalization of bad things. Marsh McLennan’s no nonsense ceo, Dan Glaser, said it well. On stage at the EY Insurance Executive Leadership Summit in May, he observed, “Who knew we’d have to factor in thermonuclear war as a business risk?” Most Americans have long lived the delusion we have no real enemies beyond our borders. But even the most isolationist Red Stater has learned about global interdependency when trying to fix a truck or tractor dependent on a Taiwanese microchip. Don’t get me started on gas prices. Or that we need baby formula and find out where it’s made - or not made. Information theft and other non-US based electronic invasions impacted countless schools and utilities and ordinary businesses. No one is alone - or safe - there is no way off this grid. Best to plan for the worst.
- There is no reason to drink bad wine. I wanted to hate the Vivino app and WSJ Wine but I love them both. Convenience, convenience, convenience. And both get you good stuff for good prices. I never thought I’d drink a no-name something from a publishing company - and like it. Go with this flow. Pun intended.
- Sneakers with business suits is wrong on many levels. As are white soled dark shoes. Attention men, Larry Fink wears jeans and a sport coat and looks normal. Don’t mix mediums. Wearing hats on Zoom is ok - but only if you have a company lid or are undergoing dermatologist-directed treatment for skin issues (me). And COVID beards should all be evaluated by people other than us. Listen to them.
- Most retirement planning is a fraud. The most important determinants of a solid plan require conjecture - best guesses. How long will you live? What will your health be? What will markets and rates and inflation do to you? Single scenario retirement planning is just malpractice. Advisors I’ve interviewed say you do the plan based on best guesses and then again with the potential train wrecks. It’s like flying, one said, you arrive at the airport, hopeful for your vacation - and the flight is cancelled. Now what? Plan for Plan B - and Plan C and Plan D…..Ask my mother, who at 88 was modestly covered for everything. Until she was homeless. Anyone think of that? She did own a share in a CCRC (please know what that is BTW) to ensure availability of long term care. Thank goodness - she will go there. Many many many others not so lucky.
- Mother Nature is one pissed off lady. My mom and her neighbors were blown up by Ian. Much of the West is besieged by wildfires. Atlanta is colder than NYC. Heat waves and drought have compromised our farms. Historic flooding in places you don’t think of as having too much water. And we will never be rid of lethal viruses - 290 of which killed humans last year. I don’t care what your politics are, we need to be aware and better prepared for threats created by this rogue. She’s mad at something - and i suspect trying to send us a message to take seriously the threats to our planet that are growing and will not ever retreat.
- I thought Top Gun Maverick would be disappointing. I was so wrong. So is the decision to see it on your mobile device. Must see big screen.
- Retirement is about protecting, not investing. Hanging on for dear life as the markets retreat, financial advisors have to accept investments as a means to an end and not the Main Event. A flash poll of advisors conducted early in 2022 by FA found that when seeking to “reduce risk” for clients, 85% looked to the portfolio asset allocation. A Ken Dychtwald/Age Wave finding this year says that more than half our clients think that “multiple” financial products are needed to address retirement funding needs. Very few people have enough money to make it through retirement. There is leverage for those limited funds in protection strategies using insurance capabilities. Get over the stigma. - the clients don’t share it. And watch for more products that provide more assured outcomes like LifePath Paycheck from BlackRock.
- Those Baby Boomers are still driving the gravy train. Sick of hearing about them you may be but they have 76% of the assets and own the most products that pay. Note that when the bull market last bottomed in 2009, their median age was only 53. Now it’s 66 and with that age comes a very different list of priorities. Refresh every client like it’s 2009. What now?
- Comfort is in for good. Casual business clothes may be the best innovation in history. Stretchy material hides some of that Zoom-belly, and we can travel and commute and spill stuff…LuLu - we love you - along with Alphalete, Rawgear, BYLT, Hoka shoes - many of which were born in the pandemic. I’m never giving up my Hermes ties or scarves but there is a new, more breathable world out there!
- Hybrid work is here to stay but you better master it quick. WFM is a godsend for time starved commuters, self motivated stars, employees with family care needs and geographically dispersed teams. And even there risks abound. Productivity is dropping in many firms dependent on collaboration and internal social networks - or that depend on engaged customer service. From a “future view”, I don’t know how younger employees get coached and grow without the leaders engaged. I don’t think you can pay people to care and I don’t think we have to employ people who don’t.
- Connectivity is productivity. Common to all nine items on the list above is that success is based on an ecosystem of delivery. Sole practitioners, individual contributors cannot achieve results in a complex world. Whether we are talking about wine, retirement planning or supportive shoes, all need the combination of accurate data driving better allocations of manufacturing resources measured for higher quality and delivered by empathetic distribution. Connectivity is created by leaders whose humility permits them to learn continuously and make adjustments. WSJ Wine is more of a distribution and customer service wonder than a product masterpiece. We know these are winery overruns. But who cares? If an employee proves they can be productive at home, who cares? Look at the end product or service as the primary guide and make your real work the seamless connectivity of the ecosystem. Too often we try to solve for one of the parts and cramp the rest of the system. Solving for WFM is backward. Find out if your product or service delivery can be supported by at-home workers and avoid the coming managerial crisis in evaluating at-home people vs on-site people. Is that really where we want to invest our time?
What Are You Afraid Of?
One of the most difficult situations I’ve experienced in my life was the sudden homelessness of my 88 year mother – driven from her longtime retirement sanctuary in Sanibel, Florida by Cat 4 Hurricane Ian on September 28. For her, truly paradise lost.
Modest spenders, my parents lived off of four annuities and a New York State pension – all benefits from my father’s long academic medical career. They lived below their means and managed to add a bit to their bank account every month for years and more after my dad passed away in 2016.
If you asked my mother at any point in her retirement what she might be afraid of, she would answer, “I’m afraid I won’t be able to live in my home”. She battled the idea of a CCRC on the mainland when I pressed them to have resources for long-term care. My dad thought it was a great idea. He got in trouble with her….but she finally relented with the hostile promise she would never live there.
My mom’s view about the CCRC has changed twice. First when my dad was diagnosed with pancreatic cancer and had a convenient place to receive the care he needed. Second when she realized she will not re-occupy her house. Many of her friends and neighbors are not so lucky – too many lacked home insurance and many more have insufficient resources to fund their longevity.
If We See Something, We Have to Say Something
I watch and interview advisors as they navigate the current marketplace and I am always impressed with the ones that can say really tough stuff to clients but do so in a way that is not offensive.
Walk a Day in Client Shoes
Ponder for a moment a situation when you got good advice you didn’t exactly ask for. Someone stepped forward and gave you advice on a tough topic or in a tough situation. Something you didn’t want to hear or hoped was not true because you sort of knew it was.
Who was it? Trust plays a huge role in providing effective advice on any subject and trust is built on history. History of knowing the person - a relative, family member, a friend - or a professional whose advice has been good.
Get Good at Bad News
How did the person communicate? Did you get a text? “Steve, your insurance coverage is completely inadequate and your asset allocation is all wrong”. Thanks, right? No, they probably talked with you - live - and invited your response. You might have walked away in a huff - but you probably didn’t. Their demeanor was probably serious - but didn’t have to be if you have a good sense of humor.
What did you do? If a trustworthy source communicated openly with you, you probably at least thought about taking action. And you now know there’s an action that someone who cares thinks you should take.
Now we have the headset for asking, “What are you afraid of?” Done right, asking what someone fears is the first step to making them feel safe.
What you say is less important than how you say it. Most communication is non-verbal. Your experience has to be known to be respected. Why you? Why follow?
Have an Opinion
If you are empathetic - and informed - you have the gift of credibility. A great friend and manager used to say that the secret to effectiveness is:
Be available.
Be concerned.
Be informed.
Have an opinion.
Advising clients is not a passive activity. In our world, advice is both a noun and a verb. The best advisors have earned the right to have an opinion.
Fear is Good
Fear - it is said by scientists - is actually a good thing. It energizes the body, sharpens the mind and prepares you to confront what you fear. Being afraid of something doesn’t mean you won’t do anything.
The best advisors channel their clients’ fears into actions. Those fears are often the stimulus to take new steps to match with changing conditions. Like drops in the market or an unexpected health event. A new client fear is actually a call to action - an opportunity for advisors to add value.
Fear Prefers Company
Have your best stories at hand. Ask permission to tell clients about other clients like them, says storytelling master, John Diehl. Bad stuff doesn’t really play favorites - it gets around like wildfire - or mold. It has the 1-2 punch of either a bad impact or bad timing. Or both. Either way, you’ve seen it before with other clients and the newly impacted folks can find some comfort in your experience. So share.
The bottom line is that retirement will always be a new journey for every new retiree. You are the guide by their side who may not see the pothole in the road but you know it’s out there. And you know what to do when it flats the tire.
The real fear most vexing to clients is that many - maybe most - are afraid they will never find you.