Your Retirement’s Been Cancelled But There’s A Bus Leaving Tomorrow
The spectacular reputational suicide of Southwest Airlines is a very public example of what happens when you promise and don’t deliver – and a warning to the retirement advice industry equally unprepared to ensure the safe retirement “arrival” of our best clients.
Southwest is in trouble because it didn’t deliver what its customers paid it to do. The underlying causation of tech snarls, point-to-point routing and Mother Nature’s wrath provide no relief for the countless thousands left stranded without options – or for the employees taking the heat on the front lines. The scale of the failure makes headlines but the real pain was felt by real people counting on Southwest.
That expectation of success – of getting us where we want to go - is the common ground with retirement planning. Southwest takes us to cities, we take clients to “retirement” or their “next chapter”. If we fail to get clients to their destination, how are we different from the Southwest holiday fiasco?
Airline customers know where they want to go. Here’s what our clients ask us every day about their destination of “retirement”:
- How much money do I need in retirement?
- How much do I need for healthcare?
- How will I pay for healthcare, especially as I get older?
- Will I be able to age in my home?
- Will I be able to help my family members?
Unfair, you say. There are so many “ifs…depends” in these questions.
- “How much money” depends on how long you live, how much you spend.
- Healthcare costs depend on your health and your location and your preferences.
- Aging in your home is a Rubik’s cube of issues including the location. Ask my homeless mother from Sanibel, Florida.
Complicated stuff, no easy answers. Kind of like running a national airline?
We Own the “How”
The solution is our problem. Our clients expect us to know and to manage the variables. The Southwest flier expects the airline to deal with weather, mechanical issues, baggage transport and scheduling the crew. Very few Southwest customers care about the details, like obsolete software. Both retirement clients and airline customers care most about the destination – the “what” of the service they are buying. They want to get there. We are responsible for the “how”, the “who” and any implications of variation in those capabilities or personnel, including the environment. Airlines have unions, airports and Mother Nature to contend with – we have Mr. Market and the Federal Reserve. And every one of our retiring clients is a first time flier.
We Own the Complexity
In neither the airline or the retirement worlds will the customers and clients be satisfied with anything less than safe arrival. “We got you close” does not work.
To be an airline is to take on the responsibility of the complex eco-system needed to make it reliable. One of the first business applications of the first supercomputers was for airline scheduling, including routes, gates and crew. It’s a mind numbing array of variables. Likewise, try managing a national labor force constantly on the move. And what about the hundreds of planes, thousands of mechanics, and millions of bags? Bring that all together for $99 one way and you have set high expectations for not much pay – but no one put a gun to your head. If you promise to make it simple, easy and inexpensive you still have to deliver. When a customer’s flight is cancelled on Christmas it no longer matters what they paid.
To be a provider of retirement planning, advice or solutions is to take on the responsibility of the complex eco-system needed to create effective and reliable retirement outcomes. We have to understand and include the value of benefits, the impact of taxes, the role of asset location and protected income. This is complex stuff and we are not embracing that complexity well enough as an industry to credibly claim we can get people to their expected destinations. We cannot expect the clients to appreciate or care about the effort or the cost of these capabilities – they are focused on the accuracy of the outcome.
It's also up to us to tell them when they cannot fly.
“Retirement” has been sold too often as a discount fare. It’s not simple, it’s not easy and it will change as we age. There are tools and capabilities to help plan, but too often both advisors and clients project and plan without stress testing the forecasted outcomes. Retirement is a journey filled with unwelcome events but most should be expected and planned for. Tossing guesstimates of your age and health and retirement spending into an online gonculator is not real planning. And it shouldn’t be advertised as such.
Don’t Wait for the Holidays to Upgrade Your Software
The Southwest beat down has included indictments of senior management for failing to invest in the capabilities needed to run the airline. Both Southwest customers and employees saw the trouble building. The lack of preparation was well known. Throughout the company, pilots and flight attendants struggled to find their assignments, customer service frayed, flights were scrapped in a couple of early warning incidents over the past couple of years that likely got a pandemic pass.
The parallel to FinServ has been called out by many people. And while we cannot know why Southwest’s leadership team did not heed the signs and the warnings, we can try to avoid their fate.
The real question may be – since we know they knew – did they not care? We can do better.
Battling Goblin Mode
Oxford Dictionary’s Word of the Year – goblin mode – captures the dumpster fire of 2022 by labeling the pandemic spawn of people “indulging in their laziest and most selfish habits”.
It is impossible for most CEOs to openly engage this villain of productivity lurking beneath the more benign label of “hybrid work”. The Economist is more PC and chose that one for its annual winner. Employee motivation and morale, aka “engagement”, is easier to measure than to manage and any challenge to the new WFH option is a potent third rail for executives hoping to restore “accountability”.
Workforce motivation is one of five complex issues we see in the face of company leadership as we enter a new year of growing economic uncertainty. No matter the size of your org, you have to find the balance – for the good of the firm, your employees and your clients. There will be winners – and losers. And that’s why not everyone is cut out to be the boss.
#1 – Out the Goblin
There are people who work and people who seek the reward of a vocation. End the fantasy that everyone will find deep meaning and fulfillment on the job – some jobs just don’t reward a high level of engagement.
- First choose growth – openly and with energy. If your company is all about growing you are just a bad fit for anyone who doesn’t embrace personal growth.
- Not all jobs are cool – know the difference between jobs and rewarding jobs - make the right jobs rewarding and accept single contributors in the others.
- Growing workers are your leaders – they set the tone for the org and they are the path to others like them. Celebrate them openly and actively.
#2 – Hybrid Work Is Either Hybrid – or Work
The key to solving any problem – especially people problems – is to first correctly frame the issue by defining it with the agreement of all parties. Good luck with “hybrid work”. I worked at a really big company where we asked every year what single change employees would make to their jobs. “Working one day per week at home” was the runaway winner every year.
- WFH is now reality. But it is not three days, and probably isn’t two for most jobs. The productivity lift is multiplied by collaboration and the joint accountability of team members.
- New employees willing to give up career growth for home time need to be guided to jobs more appropriate for individual contributors – and compensated accordingly. Make hybrid truly hybrid and stop the madness of pretending that all work and workers are the same.
#3 – Restoring Accountability
An old saw of the brokerage industry goes, “Nothing restores accountability like a bear market”. A recession and continued market volatility will bail out some management teams unwilling or unable to confront the obvious challenges. But even if you are ahead of this curve, you should consider a few environmental reality checks before you start down the “rationalization” path.
- New experiences - most employees have never experienced or do not remember bear markets, inflation, or high interest rates. Your ability to frame the company’s current condition is dependent on your ability to explain the macro reality. Avoid the temptation to use confrontational adjectives like “unprecedented”.
- Define “performance”? How many of your employees know your success metrics? What evidence do they have of performance – or underperformance? Is weakness or failure their fault or yours? Ponder again Southwest Airlines.
- New people – pandemic hires cannot be fully integrated into your culture, your systems, or your working language. They have no frame of reference, few company relationships and probably lack a real manager. Your communication cannot rely on the chain of command. Speak from the top to everyone until you are certain those connections have been established. And that won’t be in 2023.
- Make a plan, share the plan - please, please, please game out your next couple of years before you let middle managers start swinging at the marginal hires. Have the courage to accept at least the intermediate future reality and discard businesses or locations before you start picking off individuals. Think like a buyer of distressed assets and package your lower priority, lower return efforts for another owner. That approach is consistent with “accountability” and your leadership ability will be confirmed.
#4 – Make 2023 the Year YOU Connect the Dots
The eco-system rules. Everything, everyone, every process and application must be related formally to each other capability in plain sight for the entire leadership team. You need to know how this stuff works, but more so how this stuff works TOGETHER. The silo’s last stand is on a farm filled with grain.
- The CEO must be able to narrate your org’s eco-system of development and delivery – and how it works. Learn the lesson of Southwest Airlines.
- Embrace facts you are paying to gather - you cannot fear being dependent on data for corporate decision-making.
- Automation is crucial - humans are not available or capable as the primary delivery mechanism for your client/customer experiences.
- Beyond “alignment” - the integration of data, technology and human empathy is table stakes but those capabilities are seldom formally linked beyond a temporary “task force”. CONNECT the dots – don’t just “align” them – and give everyone the SAME goals, not “aligned” objectives.
#5 – Promote the Client to CEO and Enjoy the Freedom
Leadership’s most reliable ally is the consumer. Consumers and clients provide a steady stream of feedback in real time to everything your company does, including the actions of every single employee. You must actively and consistently seek this information – and that is a lot of work. You also have to organize the information and be able to read it accurately. And then there is the all important need to embrace with humility the results of an accurate read. And all of this effort has to be led directly by you. Again, this is why you get the big bucks.
- Partner with the consumer - the best CEOs make the consumer/client a partner, not a research object.
- Make your clients real to everyone - well researched personification is an internal communications winner. Humanize and personalize your target clients. At Fidelity, we got to know Sally and Harry and Suzie along with their dramatically different interests, concerns and objectives. Today the Alliance for Lifetime Income has six well researched personas that are among the best clients you could ever hope for – but are hiding from most advisors.
- Let the clients do the selling – it’s a lot easier to advocate for the needs of another person than it is to promote your own opinion. Good employees listen carefully to The Boss. Great employees help The Boss understand what the clients want and how to win their loyalty.
Take Your Foot off the Dock and Get on YOUR Boat
Commitment matters. These are complex transitions for most organizations, with significant barriers to execution, even alignment. The times are weird and unpredictable. The CEO must clearly communicate the company’s forward path and how that path achieves success. That’s the ship – make it a good ride for both associates and clients and you will earn more of both. But they have to know what’s important to you and how you win together. There is no conveniently manageable timeframe for the next chapter of our economy. Plan to keep navigating.
Do your worst, 2023 – we’re ready for you.
Word of the Year
It’s that time of year again.
If you’re not skiing or beach lounging you have time during this holiday week to
ponder meaningful concepts and people you wouldn’t otherwise think about. And
maybe consider how they guide you in the new year.
Time Magazine has their person of the year. For 2022, President Zelensky. ‘Nuff
said right there.
The Oxford Dictionary team selected their word - actually words - as “goblin
mode” - referring to the pandemic spawn of people “indulging their laziest and
most selfish habits”. If this is a new one for you, you’re not alone. And that’s
probably good.
The Economist took the safer, high impact route with “hybrid work”, which will
forever change the workplace. This story will play out in the months and years
ahead and employers of all sizes face some tough choices.
At Next Chapter, we’re going with “protection”.
We wanted a single watchword that would provoke reaction to conditions we
think are different and persistent for the new year and beyond. Our observations
of the past year include the reaction by advisors and advisory firms to inflation, to
market volatility and to a growing awareness of how poorly most retirees have
planned for retirement.
“Protection” also makes universal the application of planning and it benefits - a
“not just for retirees” perspective inclusive of younger people.
Protection is the antidote for “fear” - still the most reliable driver of human action.
Anyone or anything that can remove fear, restore calm and establish a forward
path has a killer value proposition - especially given the backdrop of uncertainty
looming so large in the world today.
Protection sets our True North for 2023. Watch for more as we use “protection” of
our clients as the objective for specific efforts across Next Chapter:
- Financial wellness
- Protected income
- Liquidity and security
Spoils Will Go to the Protectors
Winners in the delivery of protection will be rewarded first with retention of clients
many advisors don’t realize are already looking elsewhere. In addition, Protectors
will more likely consolidate assets now held by other custodians who don’t
appear to care as much.
Yes, The Cheese Moved - Sorry
Importantly, the victims in this asset shift will be surprised. “We did what what we
were supposed to do”, is the current refrain from mostly investment types. But
that was then.
A more insidious version, “No one was asking for it” is just operational tone
deafness. If we really have to wait for people to burn their retirement home
before calling the fire department we might as well change industries. We know
what retirees need before they do. That’s our job - and our value.
More to follow - so make sure you are following Next Chapter!
Mary and Ed
A HNW couple looking for both protection and tax efficiency in their relationship “do-over”
Whoever said you can’t go around twice in life hasn’t met Mary and Ed.
Once young professionals embarking on their careers, the couple became invested in their jobs and drifted apart - eventually going their separate ways. Both married and Mary had a daughter - now an adult with her own family.
Mary and Ed are successful professionals and both say they prioritized their careers at the expense of family and friends - and didn’t take much time to enjoy their financial success. Both also share openly that they regret their separate marriages ended in divorce.
But the fates intervened a few years ago when a mutual friend reconnected the two and they soon rekindled their romance. Mary and Ed say they are lucky to give their relationship a “do over”. Mary says she’s keeping her prize possession - a vintage red Corvette and Ed is equally committed to his Harley, which he rides on weekends with a group in the Northern California hills.
The couple not only drive differently on the road, they take separate routes with their money. Each has a financial advisor and though their investment styles are not the same they are complementary. “Just like our personalities!”, shares Ed.
Mary invests for herself as well as her daughter, for whom she has a trust. As a result of her divorce - requiring her to pay alimony to her former husband - she is focused on protection and security. She has shared her approach with her daughter, who is also now well aware of the financial issues of relationships. Mary has invested via managed accounts for total return but has also emphasized protection strategies for premature death and disability. She is keenly focused on risk/reward.
Ed likes to invest directly and has had success selecting individual investments - mostly stocks. He has been fairly aggressive in his retirement account with funds favoring growth over income.
Though they are maintaining separate accounts and advisors, Mary and Ed are working together to plan their future. They have some new objectives that require some adjustments to their combined assets and investment strategies. They have taken input from their advisors and shared their plans with both professionals.
The most important changes to their current investments have been to establish “safety nets” for the longer term risks they both face. While they have sufficient assets to ensure a healthy retirement paycheck - $5 million - they want to leverage their cash to more efficiently mitigate the risks associated with healthcare costs and longevity.
Mary has been the more protective of the two thus far. She has been funding her daughter’s trust with life insurance. Mary’s advisor initially resisted Mary’s concerns about security in retirement and providing for income only from her portfolio, which he told her was adequate for her expected retirement duration. Mary’s best friend introduced Mary to her advisor, who recommended allocating some of Mary’s total return portfolio to be more “protective”. Specifically, she suggested increasing the level of protected income and adding guarantees for more protection against her premature death. In addition, she provided ideas for funding long-term care. Mary’s response, “I liked her focus on protection instead of just investing. It just seemed to me she is looking at a broader set of options for my investment dollars”. Mary moved most of her accounts to the new advisor.
Ed has also prepared changes. Without any direct heirs, he had never engaged in estate planning and has now the draft of a plan benefiting Mary and his sister. As a result of Mary’s insights, he is also considering life insurance as well as long-term care. He heard about QLAC from a friend and had a subsequent conversation with Mary’s new advisor. While Mary has been especially interested in “protection”, Ed sees some of the protection strategies - like the QLAC - as part of improving his overall tax efficiency. Like many (most?) high-net-worth clients, Ed does not like taxes.
Because he has long been a self-directed investor, Ed was never very close with his financial advisor. His advisor gave up providing ideas and even the potential for formal financial planning. Ed says he never wanted to take the time involved. His advisor recently retired (they were college pals) and Ed’s account has been transferred to a younger man Ed has not met. Mary jokes, “Why don’t we introduce your advisor to mine?” Mary’s advisor is a woman.
Though they are not the same investor, Mary and Ed together fit the profile of “Ambitious Risk Takers” (ARTs) researched by the Alliance for Lifetime Income. ARTs are financially well off and are comfortable with investments. They understand the trade offs among investment strategies and are very conscious of inflation and taxes.
Like many of their age contemporaries in the Boomer generation, Mary and Ed want to spend less time working and less time managing their money. They want to optimize their investments to pay reliable income, reduce taxes and offset unknown but potentially significant costs. “We have our ambitious money and our protection money”, Mary explains, right on cue.
Many advisors might overlook Mary and Ed. On paper they each looked “all set” just a short time ago. But their retirement and their relationship have created the need for significant changes. In both cases for different reasons their existing advisors were not the best fit for their new lives and the strategies appropriate for their new goals. And though everything is not yet settled in their lives, both Mary and Ed have strong opinions about what they want to do and realize they need help.
For more information about Mary and Ed, and the entire series of client “personas” created from research by the Alliance for Lifetime Income, please check out https://resources.protectedincome.org/pdf/New-Client-Profile-3-Mary-Ed-ALI.pdf
We Just Flunked the Retirement Test
Industry Leaders Offer First Comprehensive Design Principles
Next Chapter leadership representing 60+ firms reports:
- Objective: Better financial outcomes for all.
- We can do much better.
- Smart design leads the way.
Founded in 1968, J.D. Power enabled consumers to make better decisions. A Mazda design flaw was discovered in 1974, the Wall Street Journal ran the story, and the rest is history.
Great Design = Great Solutions = Great Outcomes
- Most retirement solutions fail to meet expectations for simplicity or effectiveness, according to Next Chapter consumer and advisor analysis.
- Coordinated elements designed to slide effortlessly into our daily lives have become the expectation. Apple sets the standard.
- Toyota, Honda, BMW, and Tesla became leaders because of their focus on “design.”
In the financial advice industry, there is lots of talk about planning, analysis, and adoption. But we don’t connect those dots to implementation. Can we answer: how much money consumers will need for retirement? Or how much will healthcare cost?
Adoption Issues Indicate a Design Flaw
“The owner’s manual is dead,” a colleague tells me. If enterprise software doesn’t immediately improve process and experience, it will be dead on arrival. Winners provide intuitive products and services, which guides effective design. David Dintenfass, Fidelity CMO frosts this cake: “True customer centricity is an act of profound humility."
Design Principles
Great design is a function of an ecosystem that connects with what the user cares about and produce the results they want. Electric cars achieve this only if there's a support structure of charging stations. The principles of compelling design need a support structure because the focus is achieving the desired result.
Cars and retirement advice are complicated. The car buyer wants reliability, efficiency and to feel good about her choice. “Retirement” needs to do the same. Lots of moving parts in both worlds and both require supportive systems. We test cars and ask drivers what they think. We can do the same with retirement solutions.
Ask the Experts
Next Chapter was started to “rethink retirement.” Industry leaders were invited to explore the topic. We set up teams and looked at all key parts of the retirement planning eco-system.
- Client Communications
- Digital Capabilities
- Easy Client Experience
- Financial Wellness
- Easy Client Experience
- Retirement Income Innovation
The teams began collaborations in May 2020 and asked:
- How should we define "retirement advice"? What is “financial wellness”?
- How will we know we are solving client needs?
- What do advisors need to be effective and efficient?
- What does a SWOT analysis reveal?
NextGen Leader Handoff
The Next Chapter Advisory Council examined the six areas and turned over the work to a network of “rising stars” – nominated by the Council or were MMI Pathway to Leadership participants run by Sarah Nau. 60 recruits from 50+ companies asked: How could we sharpen existing offerings and what should guide future efforts?
Next Chapter leaders led the discussion sessions and EY supplied a support team to facilitate the work. We named the program “Leadership in Action” – these are the future company leaders already in significant positions.
Each team contributed fresh perspective and common sense to the task of defining principles in the design of retirement products, processes, and solutions. Ten Common Design Principles and six additional perspectives for each retirement design topic emerged.
These tests reveal design challenges like:
- Who is delivering the solution to the client? What is the added value – is it obvious to the client?
- When is the best time to propose or deliver the solution?
- Where should the solution be available? How do we efficiently deliver the solution?
- Why is this solution important? Do family members know why this solution is needed?
Winners Only Please
The value of good design is in the outcome – whether it's a product, process, experience, or solution. “Better outcomes” is the objective of our work on behalf of clients and includes a greater ease of doing business for advisors. Testing existing capabilities for the quality, empathy and effectiveness of the design is now possible thanks to the efforts of our Next Chapter participants and leaders.
Stay tuned for more information as we apply the learnings to existing capabilities and as we develop ideas on next best practices. Why not let smart design lead the way? And, have the humility to admit when we can do better.