Don’t Look Now - But Your Valuation is Slipping
An old saw claims that good wine and wisdom get better with age. But of late, that maxim does not seem to apply to the aging of typical advisory practice. At NextChapter, we observe organizations of all sizes delivering great financial results - earnings - but losing assets to the inevitable impact of an aging clientele. Left unchecked, firm valuations will continue to slide. That’s not the next chapter most ownership envisions. What to do?
We see three common scenarios - each a function of how that ownership views their situation. Let me first describe the three and then suggest remediation strategies for each.
Scenario 1 - What’s the Problem?
This is “great earnings” scenario - powered by a historic bull market, maybe some acquisitions. Earnings are great if you are an employee or a stockholder with a short term time horizon. If you plan to retire soon or sell your stock, there is no problem here. Advisor attrition is at an all time high and there is strong anecdotal evidence of record senior industry leadership departures - also well timed with a cresting wave of success. So with the benefits of good timing, we say “enjoy!”
For the other two scenarios - it’s back to reality.
Scenario 2 - What to Do?
Firms in this bucket tend are operating as usual for the most part, but have lost long-time clients here and there due to life-related inflection points like a death or significant illness.
As you know from popular industry data, advisors without a solid relationship with spouses, partners and adult children seldom hang on to those relationships. 70% departure rates are noted for the unengaged spouse, 90% for the unengaged Generation 2 children. An experienced trust and estate colleague of ours claims that when she gets involved with a competitive situation and the survivors are questioning the value of continuing with the incumbent advisor, she finds enough overlooked details to win 100% of clients away from their (typically) dad’s advisor. So there is a cost of inaction.
This scenario is mostly defined by a lack of certainty - what should we do - and not a lack of interest or willingness. The practice is challenged by new circumstances associated with aging families.
Scenario Three - Bring it On
These are the advisors and practices that are leaning in to the challenges of aging clients and seeing the opportunities with surviving Generation 1 spouses/partners and with Generation 2. This is the advisor cohort that has been including - requesting - engagement with family members before most of the “Moments” occur. This proactive effort is paying dividends as conditions develop and the family already knows and trusts the advisor and team.
This type of practice also manages more moving parts than a straight-on investment shop. We see three important attribures that define a “longevity savvy” business compared to the other two scenarios above:
Dedicated professional staff applied to the unique demands of longevity planning - including the ability to react to the Moments That Matter without significant disruption to the business.
A mindset of proactivity to engage. This practice is not just ready for action - it facilitates it. In the classic family office model or the ethos of a private bank, connecting with G1 survivors and Generation 2 is THE business objective, not an ancillary activity.
The practice measures success not by absolute financial returns, but by the percentage achievement of “opportunity”. This metric is different from most advisory practices and becomes more powerful as the size of the organization increases. Another descriptor is serving well “the other 80%” of the clients typically not the focus clients of a firm. The narrowing of engagement is a natural development over time as clients that are not ideal or not fully connected may slide off in part, attracted by other products, different ideas or lower prices. The “full opportunity” objective is a dedicated plan to earn back those “held away” assets by learning why they are not with the practice and what it would take to get them back. This is a true mindset of creating and maintaining organic growth.
So Growth Doctor - What Now?
Back to the first scenario. The perspective that there is “no problem” may be not be so accurate depending on the exit strategy. Like with the sale of your family home, your sales price has a lot to do with your view of the result. A practice that has been depleted by withdrawals from aging clients - and not replaced by engaging G2 children or new Gen X or Millennials - is truly a wasting asset. We see greater scrutiny of the “age-weighted” revenues when buyers approach practices. Organic growth is the metric — retention plus the impact of net annual flows - and this measure has become top of mind for buyers including more savvy private equity firms. Buyer education is improving, informed by some overly optimistic early acquistions, and that dilapidated house just won’t fetch the premium paid for a well maintained structure.
Scenario One invites a couple options - mostly a function of time horizon. If the owner wants to go soon, one choice is to align with another firm and help transition relationships. On a timeline with transparency for everyone. This is the best way to increase value by getting help to grow the existing relationships.
The second option takes more time but essentially recruits a junior partner to earn out the buy. One interesting take on this option we saw recently was a two year run after the hiring of the primary owner’s daughter, who refreshed most of the firm’s relationships, picked up the G2 kids and nearly doubled the practice revenue. She leveraged the G1 connections but really focused more on the kids, who she said were “learning a lot” by watching the issues faced by their aging parents. With those lessons running in real time, the new advisor got the kids to the table investing in retirement income and long-term care, with immediate bump to the firm’s margins.
Scenario Two is a bit easier - if the WILL is genuine. So many advisors and firms are running so fast that it is difficult to find the time to add longevity services. The additional needs of aging clients and their families can creep up on us - and all of a sudden everyone seems to need everything. That’s the real challenge of those “Moments That Matter” - they don’t come with advance warning.
Scenario Two firms first need a strategic “time out”. Resist the temptation to treat longevity planning as just a bolt-on to your existing capabilities. This is a different business requiring different service and - likely - dedicated personnel. The most effective model we have seen is when the practice acquires a specialist to not just meet the current expectations of current clients, but also oversees the practice “expansion” into longevity planning and the aligned capabilities, like how to refer caregiving needs, execute estate planning and mitigate risks of fraud.
Linda M, a senior advisor from a wirehouse firm, joined the existing four professional practice at a competitor in Northeast Florida. Linda says - with a smile - “I do the soft stuff”. She now oversees most of the firm’s financial planning capabilities in addition to coordinating support capabilities including fraud protection and caregiving referrals and long-term care. Linda’s four partners each focus on one other legacy capabilities - retirement plans, investment portfolios, bonds and tax management. They say, “For our clients and their families, Linda is the glue”.
The Thirty Year Flood (of New Business) - Choose a Boat
The condition of an aging demographic is so well known, the very mention of “baby boomers” creates the eye roll wherever I go — but this is more. The current state of the advisory business is being shaped by an demographic but the awareness of that force is uneven across firms either not immediately impacted by the loss of clients or complacent about their current terrific financial results. As a result, the response to the demographic changes is wide ranging.
Like most really significant trends, the impact of longevity is slowly building but will be a game changer for alert advisory practices leaning into the trend - and for companies providing capabilities and products that support higher quality longevity. Adaptable firms have an opportunity to capture market share at a rate we have not seen since managed accounts began to roll over stockbrokers. That part of the industry captured $12 trillion from a dead start. A similar path could be enjoyed by companies offering retirement solutions including protected income. Annuity sales were a record $100+ billion in the first quarter of 2024. Given the slim penetration rate of annuities within the advice industry, I can see upside that is multiples of the current run rate in order to achieve a pretty basic share of the retirement pie. The demography of the annuity buyer is getting younger - reflecting a lot of interest from Generation 2, which is learning from watching their parents. And we know that they are just getting started - this tide will lift all participating boats.
Longevity planning and solutions - stimulated by the Moments That Matter - are the biggest potential disruptors and drivers of business valuation since the move from advisors selling products to positioning managed solutions.
So what is your plan?
The Business of Financial Wellness 2.0
Written by: Steve Gresham and Suzanne Schmitt
Supreme Court Justice Potter Stewart famously remarked about pornography, “I know it when I see it.” The point was that it’s hard to otherwise put something that seems obvious into words.
We have a similar problem with the phrase “financial wellness.” Conventionally framed as managing daily finances, protecting against risks to your money and achieving goals, it’s best thought of as a journey where the destination is a state of financial well-being. Yet even the idea of being “well” can be highly subjective.
You can assess an individual’s financial health at a point in time, but their personal and familial circumstances are bound to change. Healthcare issues, for instance, can disrupt even the most thoughtful financial plans.
But if we are merely focused on investments and products we sell—as opposed to being well-being specialists—we haven’t gotten involved in those personal things. Viewed purely through a financial lens, many clients in their late fifties and sixties may be retirement ready. That instinctually leads us to jump to the conclusion they are financially healthy. We don’t lean into the messiness that is life and family financial planning.
And that could cost us.
It’s important that we prioritize well-being if we want to sustain the value of holistic, fee-for-service, fiduciary-level advice. If our clients don’t achieve peace of mind with their current advisor, they can be lured through workplace and retirement wellness offers to other firms where they think they will achieve it. Nothing motivates people more than fear—and many of our clients are genuinely afraid they will run out of money, need to sell their homes or move into assisted living.
In our personal experience (through our failures and successes), we’ve become convinced that centering our ideas on well-being can help advisors achieve their business goals (in the form of net new assets, growth in consolidated assets and increased share of clients’ wallets). Consider these five things:
Words matter. If you want the language you use to change the perception of your firm, remember that you should use words that offer peace of mind first, not technical concepts about asset allocation and investment policy.
You want better outcomes, not best efforts. Most retirement solutions in place today depend on market results and are subject to market risks. These risks are well known to the designers, who rely on their knowledge of capital markets research and dampen the risks by using long time horizons to smooth variations. While it’s a rational, objective approach that generally works for the population at large, individuals might have problems with the risks of the design and its terminal points: Today’s retiring clients and plan participants have seen down markets—big ones—in 1987, from 2000 to 2001 and from 2007 to 2009, as well as some sharp corrections in between.
The late father of Steve Gresham, one of the co-authors of this article, knew nothing about markets or investing, but he knew when the stakes were too high for his peace of mind. He worked for universities his entire career and earned the negotiated benefits of retirement annuities. He surprised Steve by sharing that he had converted his 50/50 stock-bond plans to 100% annuities with Steve’s mother as second life. He never looked again at the market. He cashed the checks, and now so does Steve’s mother at the age of 88. Their definition of “financial wellness” was not having to worry about the markets, their income level, their ability to finance healthcare or their ability to age in their home. Done.
The clients of financial advisors often are looking for a certainty of outcome. If the client is analytical and satisfied by data, they might enjoy a risk matrix offering a percentage likelihood of success. But it’s unlikely more than a fraction of our clients are like that—especially not retiring couples and their families. In most households, there’s someone who values protection and guarantees over potential returns or capital market theory.
The household is the client. Most advisors dealing with a household talk to the typically male and financially confident household head. Their firms may realize they should be dealing with multiple generations of a client’s family—including the spouses, the adult children and aging parents—but they haven’t given their advisors the direction to do it. This demographic sandwich, the generation above and below your clients, will drive more than 80% of advice industry profits through at least 2030. Our success depends on both keeping our existing clients and consolidating the assets we don’t currently oversee but our competitors do. Client relationship management software will have to accommodate entire families for this reason, and we’ll need to coach and train associates to talk about and to clients about these other family members.
Your service models will have to be for everyone. And remember, each of these different family members will have a different idea about what “peace of mind” means and whether you can offer it to them.
Frank McAleer, a senior vice president of wealth planning at Raymond James, asks clients, “What is the list of stuff you most worry about or that could go wrong as you live longer?” And “What about family members for whom you could become responsible?” The answers will be different for a 26-year-old 401(k) plan participant and for a 62-year-old pre-retiree. Different still for their families.
For this you might have to create separate service models for different family members—with different levels of communications, pricing and product and service options. One family member might want the reliability of a paper account statement; another might need the immediate transparency of a mobile app. When you have separate models, you can more easily and consistently focus on improvements for unique cohorts.
Wealthy families in particular expect their advisory firms, plan sponsors and plan administrators to offer a variety of models, including in-plan advice and fiduciary wealth management (with trust services). And if the past is any indication, those expectations will quickly spread to people in the mass affluent category and beyond.
Know how to implement. So how do you integrate “well-being” principles into your services? It’s a matter of both will and skill.
You may or may not possess the empathy you need when a client’s talk turns to the needs of an aging parent or the need to pay off a child’s college loan. If you don’t, that’s a management problem for your firm, which has to make sure empathetic advisors are in place. Your will to do this might suffer still, ironically because of your success at the markets—stock rallies likely make your work look easy and lessen your enthusiasm for harder tasks, such as mustering the energy to reach three generations of clients in a household. But if you fail at that, you risk less trust and less wallet share.
Technology’s Role
The bad news is that “wellness” is not a widget companies can attach to their existing offering. That approach has been attempted with the best of intentions by retirement income product providers. But the complexity of the products and their sometimes inconsistent availability (and pricing) are barriers to more consistent use in planning—and adoption by more advisors.
To achieve its true potential, “wellness” must be integral to the language and the systems and the solutions of a firm. I will never forget the call from a seasoned advisor who had completed his outreach to a wealthy family, with the help of the head of household. “I now have nine clients instead of one!” He was only partially kidding. It’s a lot of work to track the needs of families, and you don’t want to be the advisor who missed a Medicare election, a life event or the 21st birthday of a beneficiary.
The solution is a combination of systems for client data, simple technology tools for the clients that can be used along with the advisor’s old school training and coaching. The advisors and clients both will have to adopt the technologies to ensure the reach and consistency of engagement. And creating systems like this is the No. 1 job of today’s financial firm CEOs if they want to create peace of mind among both clients and advisory firm associates.
The Workplace
One way for a wellness specialist to connect with clients is by getting to know their workplace/benefits providers. Work is where your clients make much of their money and get basic insurance. As it happens, workers place profound trust in their employers and the service providers they offer. The public relations firm Edelman, in its 2023 “Trust Barometer,” said that workers trust their employers more than government, media, advertising or other corporate sources.
How much do you know about your clients’ benefits? Or their spouse’s or partner’s? Or the advisors who service their workplace plans?
It’s also a natural place to get more involved and introduce advice and guidance light. If we leaned in, we might find out about things like employer student loan repayments, which, as we noted earlier, could help a next-generation client who is looking at student debt as an obstacle to wealth creation early in their financial lives.
At best, you’ll find educational resources for your client. At worst, you’ll uncover risks to your relationship in the form of competing products, services and advice.
The next thing you’ll want to be on top of is your clients’ key life events—those inflection points when money is in motion. Studies suggest roughly two-thirds of consumers seek advice after a major life event (a marriage, a child going to college or a death or inheritance). These points present an opportunity for you to engage in advice and naturally place products, services and solutions. Workplace plans are getting smarter about using data to get in front of consumers in transition. How strong are your relationships and capabilities to help consumers to and through life changes? Is this a practice vulnerability for you?
Advisors focusing on wellness can also become more credible by choosing the right partners: trustworthy subject matter experts who offer you a deeper bench of knowledge. Different organizations can offer you support for issues concerning caregiving (something tackled by the National Alliance for Caregiving, for instance), general family financial health (a field covered by the Financial Health Network) and end-of-life planning (for example, the organization called Going with Grace).
How much do you know about your clients’ health, family health history and potential caregiving obligations? If the answer is “not much,” your clients may be at risk. The diagnosis of chronic health conditions is on the rise. Roughly 20% of people in the U.S. are currently acting as an unpaid caregiver—frequently to the detriment of their own health, financial security and professional growth.
Knowing more about these issues can help you retain clients. You’re also positioned for growth with the next generations.
What Advisors Get Wrong About Wellness
Remember the old saw: When you have a hammer, everything looks like a nail. The same is true with financial products. When you have one, you’re looking for a need and you do things backward.
Consumers aren’t looking for product. They’re looking for someone who deeply understands their needs; is empathetic; and offers objective, product-agnostic resources and advice.
Advisors also get things wrong if they’re not looking at the risks of a client’s entire family. After all, a client is only as financially healthy as the people who depend on them. Even if your clients seem to have their act together, how much do they know about their parents’ ability to navigate a major health setback? Or their parents’ ability to afford staying in their home as they age? How much do they know about their family’s financial plans and the impact events might have on their balance sheets?
And how well do you understand these risks your clients have taken on as you look across your book?
We also err if we forget that this is a journey. Let’s say that your clients have manageable debt, three to six months of emergency savings and are basically on track for retirement. Does that mean they are financially well? Life happens. Things change. Most advice givers think that the key is to get people to retirement, but it’s actually to get them through it. Given that most of us may live a third of our life in retirement, how exactly does that work? Our offering must also get into things like how retirees maintain independence, secure income and ensure long-term care, as well as their ability to share wealth with the next generations.
The biggest mistake is to play a short game.
The Chart of the Decade
At a recent meeting of top advisors hosted by education innovator Wright State University (where flight was born), I shared this chart under the guise of “opportunity”.
What’s the subject?, I asked. Tesla stock price? Bitcoin projection? Spending on FinTechs? Nearly a perfect S-curve, which favors the early adopters. And the best news, we can catch this one just before the S takes flight – note the arrow.
The chart is a propensity chart, depicting the likelihood of experiencing some level of incapacity due to one of the three most common health events to cause incapacity – Alzheimer’s, other forms of dementia, and mild cognitive impairment (early onset dementia).
The savvy advisors know from experience that each of these ailments presents a life change – to the client/patient and to the family. The impact is both immediate and ongoing. Nothing is ever the same. Priorities change. In the world of financial and retirement advice, advisors are needed more than ever and for more complex services.
Our response is critical. We have to react with empathy, engage professionally and with confidence. We become the financial emergency room, transitioning to long-term care. And not just for our primary, affected client – we have to be there for perhaps three generations of family members who are now also affected. Everyone needs to know we have this, we can help.
We don’t have much time before these conditions accelerate in frequency. The current overall propensity rate is 1 in 8 for people age 68 but more than doubles by 78 – and 6X at 88. Over the next ten years, nearly 1 in 3 people we now serve are likely to become incapacitated themselves, and a great many more will be impacted by someone in their life who becomes incapacitated.
For advisors and their firms serving the Baby Boomer age wave of 76 million people, this transition has been looming…but preparation is still light. Every firm and every advisor will need policies, procedures and supportive tools to:
- Identify incapacity for the protection of the client, her family and the firm
- Protect clients and their families from the threats of incapacity, including identity theft, fraud and elder abuse
- Engage families in support of incapacitated clients – as well as clients without family support
- Adjust to the needs of a family of three generations or more and help optimize finances for risk, tax, income and long-term care
Don’t Ignore This Moment
If you are winding down your advisory career, you might be doing the math and saying that in ten years you will be on a beach living the vida mas fina. That’s probably pretty well known by your clients and their families. As Accredited Investor co-founder, Ross Levin said so well at our Next Chapter Rockin’ Retirement event on May 24, top firms are winning clients and keeping clients because they have a “contract” with clients and their families that the firm will be there for them. Another speaker, veteran Tom Bradley of Schwab noted that aging clients – and aging advisors – are now important measures for the valuation of an advisory practice (get the whole program here ADD LINK to NEXT CHAPTER MEMBERSHIP).
One very interesting aspect of this chart is that it is also a good picture of the demand for pretty much everything associated with the historic demographic cohort. If they will need it, you name it and the growth curve will be similar. Demand for in-home caregivers, Medicare counselling, pickleball courts, assisted living facilities…they’re all here at the same time. Consider…..
The Price of Ignorance – Five Risks Ahead
I’ve also spent a lot of time worrying about this issue on behalf of big company clients and I see five significant risks of keeping our heads in the sand:
- We lose current clients and their assets
- We lose the potential consolidation of assets held by our clients elsewhere – that’s a pretty similar number to the total in 1 above
- We lose the client’s family – if we don’t take care of the primary client, the family won’t stick around. Surviving spouses and adult children have no affinity for our failure to act.
- We risk increasing scrutiny as fiduciaries or service providers that do not sufficiently “know your client” – an area of growing interest to state consumer protection regulators. Get ready also for a return of active arbitration in this area as we return to in-person activity after a pandemic slowdown.
- Finally, a firm that does not do well by its aging clients is exposed to significant reputational risk. Poor experiences might be contained in the complaint process, but some of the more colorful cases will doubtless make headlines – electronic or otherwise. I expect a lot of interest in these stories.
Other Than That Mrs. Lincoln, How Was the Play?
Every corner of the financial advice and investment management industry has benefited handsomely, unexpectedly from the historic demographic wave and the power of that wave to lift all economic boats. Now it’s time to repay some of that value by meeting the needs of our loyal clients and their families – all of whom will be encountering their longevity for the first time. Our ability to serve is a function of both will and skill. I’m completely confident we have the skill. Do we have the will?
Improving Solution Efficiency and Client Confidence with Added Protection
Written by: Paul Cahill, Steve Gresham and Mike Harris
That Portfolio is Not Enough
Todd Z. has been busy acquiring new clients. “All I have to ask a prospective client working with a traditional investment advisor is whether they have any guarantees in their investment portfolio – and would they like to add a personal pension “bucket” with a guaranteed income stream for the rest of their lives”.
“Protection is gaining more and more traction in our uncertain world,” say Todd, a 35 year veteran, and part of a 125 advisor team brokering with one of the leading national IBD firms, reports that many of his competitors are making his life easy. “A new client found me after asking the advisor (from a national firm) about guaranteed income. And the advisor said he didn’t believe in annuities”.
Heads in the Sand Can’t See Changes
Our collective history working with advisors across all national firms, RIAs and IBDs has spanned the move from stockbrokers to managed account consultants and from life insurance agents to advanced planning financial professionals. Our common observation: clients lead us forward into the areas important to them, and advisors who listen take market share away from competition fighting the trend.
Paul and Steve worked to introduce managed accounts to skeptical advisors – “Why would I refer my clients assets to a third party?! What’s my added value?”. That perspective seems silly now – especially with $11 trillion in managed accounts. For Mike, an advanced planning leader, he found opposition to solutions-based sales of life and annuity products – even among advisors already using them but only for simple sales. “One and done”, Mike recalls, “They had the tools but not the patience”. Oy.
Peak65® is Here – To Stay
The shift from investing for retirement to actually funding that retirement is on, and more Americans will turn 65 this year than ever before. Peak65® is here, according to the Alliance for Lifetime Income, and Peak65® author, Jason Fichtner says that more than 11,000 people are rolling into retirement every day. We know the data, but we also see the results every day with advisors like Todd. And we are frankly baffled that many advisors are not embracing “protection”.
Are You Listening? Data Says “No”
The 2023 Protected Retirement Income and Planning Study – also from the Alliance – reveals a communication gap between retiring clients and their advisors. 77% of financial professionals say they raise the topic of protection with their clients, yet only 33% of clients surveyed say their FP has done so. This is pure communication skill – but also can be the result of advisors talking to some clients but not others. This inconsistency of solutions delivery has bedeviled the advice industry for years. Some clients get planning, most don’t. Some clients have investments and protection solutions, most don’t. With an average book of 150 households, most advisors are time challenged to keep up with the retirement needs of clients – clients that were a lot easier to care for when they were simply mailing in checks.
Use Normal Human Language, Not Financial Jargon
When investment-focused advisors interact with clients, we see semantic differences that keep clients guessing. Three risks feared by clients work against advisors devoted to portfolio management and not leveraging the power of protection:
- “Sequence of returns” risk, aka the potential for their nest egg to crash at any point in retirement makes many clients lose sleep. Why not offer a percentage of the portfolio “hedged” against a market decline by providing protected income?
- “Who will manage our retirement income” risk – a common fear for clients facing their own mortality – or cognitive ability. “I don’t want to worry my children”, said Jackie, a client. Other annuitants, like Steve’s dad, loved the idea of naming Steve’s mom as a second life on the annuity. Mom has outlived Dad by eight years – so far.
- “Longevity” risk – speaks directly to clients’ well documented fear of outliving their money. Todd highlights the concept of a “personal pension” with income guaranteed for life. “Pure peace of mind” he says.
Get Support for Your Protection Move
Mike quotes Linda, a longtime advisor colleague now with Raymond James, who joins Todd in underscoring the importance of firm infrastructure in support of protection solutions. After ignoring annuities for the first several years, a colleague showed her some basic strategies that were also soothing for clients. Her recommendations for the investment advisor transitioning to at protection:
- Start with trust – Linda cites the level of trust her clients placed in her that made the conversation about annuities an easy transition from other products.
- Explain the benefits – slowly - once clients understand the protection aspect that annuities provide through secured income, that perspective acts to solidify their trust.
- Address anxiety - using annuities with clients that seem to be a little anxious – roughly half her clients - really helps them get past their concerns.
- Set the stage ahead of time – Linda includes annuities in the retirement solution set she talks about with all clients to help smooth the path to the annuity conversation when it's time for that discussion.
Don’t Speed
Top advisor, Rick gets the parting shot. “The markets have been good to us – again! Pretty much every client knows that trees don’t grow to the sky, so taking some profits off the table and ‘banking’ them for life in a lifetime income product just makes sense”.
Paul Cahill has led distribution teams across mutual funds, ETF’s, and Separately Managed accounts for the past 25 years, including most recently as National Sales Director-Independent & RIA Division for Virtus Investment Partners. He is currently serving as a executive-in-residence at NextChapter.
Steve Gresham is managing principal of NextChapter, an industry leadership community dedicated to improving retirement outcomes – for everyone. He is also Senior Education Advisor to the Alliance for Lifetime Income. See more at: https://nextchapterinnovation.com/
Mike Harris, CFP, CLU, ChFC, led planning and protection teams for more than 30 years, most recently with Lincoln Financial Group. He is also Senior Education Advisor to the Alliance for Lifetime Income.
For more information about Peak65® - please see: https://www.protectedincome.org/ymm-peak65/
The Retirement Wake-Up Call is Here
Disruptors Paving the Way for New Competitors
In 1965, a Harvard-trained lawyer working for the U.S. Department of Labor published a book warning Americans that their cars could kill them. Unsafe at Any Speed: The Designed-in Dangers of the American Automobile by Ralph Nader (1965) rocked the Detroit auto industry, and its damning revelations prompted the federal government to act with uncharacteristic energy to implement the National Traffic and Motor Vehicle Safety Act the next year. Nader’s message was that car manufacturers knew about vehicle defects and in fact designed them that way. His moral observation: You can’t trust the maker of the car you drive.
Now let’s take another industry that’s likely to face trust issues. Tens of millions of Americans believe they are going to be fine in retirement. But those of us in the financial advice industry know better. Most of these retirees will run out of money, have significant health issues, and become unable to manage the care they need.
But have we warned consumers about this? If we cannot ensure that they thrive in longevity, aren’t we responsible for telling them? And if there is a problem for consumers, then financial advisors, their firms, and investment solutions companies will be greatly affected.
This article outlines:
- The impediments to effective consumer/client engagement for advisors.
- The structural barriers facing investment and product providers and advisory firms.
- The path forward for creating better outcomes and comparative models for success.
The need to aid an historically large generation of retiring consumers and their families is the most significant financial challenge in post-World War II America—and the current outlook isn’t good.
Retirement Challenge #1: A Lot of Unprepared Consumers
Consider that when you search Google for "retirement savings crisis" you will get 69 million results. The vast majority of our clients are baby boomers, the generation first born in 1946. That group still is 70-million strong, and together with their children and aging parents represent more than one-third of the U.S. population. They own half the nation’s wealth and represent 70 percent of its consumer spending. They currently generate 80 percent of financial advice industry revenues and will hold that spot through 2030, according to Tiburon Strategic Advisors.1
We know consumers are concerned about market volatility—and that concern becomes acute when they near retirement. According to the Alliance for Lifetime Income (2023), 43 percent of consumers believe the 2022 market setback represents a longer-term change that negatively alters their retirement outlook. They are facing a different economic and personal healthcare picture. More than half of consumers said one of the three reasons they retired was circumstances of health, job loss, mandatory age requirements, or the impacts of COVID-19.
Awareness of the risks of longevity is growing. During the boomers’ lifetimes, life expectancy at birth has increased 17 percent to 78.8 years, and life span at 65 has increased 44 percent. That longevity will demand more resources from them after they retire. Yet at the same time, the workforce supporting Social Security recipients has declined. The number of workers per beneficiary was more than 50 in 1946.2 That ratio has now fallen to 2.8 workers. Meanwhile, by 2040, the number of Americans age 65 and older will have doubled since 2000, and the population age 85 and older will have doubled since 2020.
We also know that many people don’t just ‘feel’ vulnerable. The National Council on Aging (Basel et al. 2023) said 80 percent of households with an older adult are financially struggling today or they’re at risk of economic insecurity as they age. Most Americans also said they want to live independently, in their own homes, as they age. But 60 percent can’t afford more than two years of in-home care, and 45 percent of people age 60 and older don’t have enough income to cover basic living costs.
Continue reading at The Investments & Wealth Institute.
Don’t Be Afraid of Annuities
“Why would I give my clients’ money to another advisor - what would be my value?”
That line dominated the early years of today’s advice industry workhorse, the managed account. Financial advisors have amassed more than $11 trillion of client assets in a product idea once so abhorrent that I was threatened with the loss of my job in two firms and banned from branch offices by managers convinced their revenue would collapse.
The annuity is now the Rodney Dangerfield of financial advice - based on its share of retirement assets - getting no respect. Eerily similar treatment to that given the first managed accounts. So skeptics of annuities persist, despite the new reality of products designed to protect client assets more efficiently than a portfolio.
Check out the parallels:
Managed accounts are too expensive. The first managed accounts sported annual fees of 3% per year, which seemed high to portfolio managers providing institutional clients the same service for much less. But to most stockbrokers, 3% was inadequate compared to commissions on stock trades or 8.5% front end loads on some mutual funds, 4% on a bond and something in the middle for a unit trust.
Reality: Competition brings down costs - to the benefit of the consumer - and managed accounts now average closer to 1% per year, the 8.5% loads are gone and commissions are zero at Fidelity. Likewise, “annuities” are not all priced the same and advisors remembering heavier variable products are usually surprised by the current pricing.
Selling managed accounts will cut my income. The managed account was a trap door for the industry, said advisors and their managers used to the instant gratification of product sales and commissions. Purchasing annuities on most platforms reduces the advisor’s AUM.
Reality: More forward thinking types saw the potential for building assets, leveraging the markets for growth of AUM and providing more time to work with clients and find new business. They traded the short-term hit to current income in favor of building for the long-term.
Likewise, the addition of protected income strategies is very often viewed by clients as an additional service - and advisors report success in capturing assets currently held away from the primary advisor. So protection strategies can increase overall client share of wallet.
Managed accounts are too complicated. Complaints rained in on advisory headquarters from advisors howling about the need for “multi-page!” investment policy questionnaires, client signatures (“They gave me the OK over the phone”) and additional registration as an investment advisor agent. Multiple asset classes and “too many” sub-advisor names were “confusing” to clients - “Why can’t we use just the managers beating the market?”…
Reality: A new level of professionalism was replacing the stockbroker. The managed account is not a product, industry pioneer Len Reinhart would often say, it is a service. Consulting units like his at Smith Barney had duplicated the investment approach used by corporate pension funds and endowments. Clients now had not just a personal advisor, but also a consultant selecting managers and tracking performance, and full time investment teams managing their money.
Advisors who manage only investments miss the opportunity to contribute to clients’ net income and equity by addressing their expenses and liabilities. That’s no longer an option. Clients feeling confident about their $1 million nest egg may not be considering their potential longevity and the prospect of funding a retirement that stretches three decades - or more. The reality is that very few retirement aged clients have sufficient assets to fund their longevity, including the highly variable costs of healthcare and life care. Leveraging limited assets is a fast growing theme for a new level of advisor professionalism that seeks to ensure the protection of clients, not just investment returns. The definition of a “financial advisor” is changing once again - beyond “investment advisor”.
No one is asking for a managed account. My personal favorite and the perennial foe of any entrepreneur introducing anything new. The classic responses include “People riding horses never asked for cars” or the more contemporary version when Apple combined our music and a camera into a portable telephone.
Reality: Products rise to meet consumer demand. The stockbroker never really answered the nagging question, “How am I doing?”. As more clients became responsible for their retirement - IRAs, 401(k)s - they became more concerned about returns. Independent investment managers and trust companies were only too happy to provide custodial services and performance reports. Clients were looking for a better, more reliable and more transparent solution. It was less important for clients to fully understand or appreciate the role of asset allocation and risk management and multiple asset classes. Stockbrokers working for commissions didn’t meet the standards of a “process”.
“Annuities” have matured to meet consumer demand. More than 100 products in a couple dozen categories filled the annual Barron’s guide to the best annuities. Income streams can extend to cover a lifetime, begin at specific ages to match liabilities, add features to offset inflation, incorporate death benefits and name specific heirs.
The real power of consumer demand is that consumers may not be able to name what they want but they sure can describe what it should do. Savvy marketers interpret and great innovators build the solution. The best advisors using annuities do not rely on complicated illustrations or labor over the lengthy applications, they talk to the clients about what they want to accomplish. Protection is an emotional topic - the solution is an emotional decision. Peace of mind is not an intellectual compromise for the advisor.
Satisfying clients’ emotions is not enough to overcome doubters among mostly left-brained, analytical advisors. But clients - and their families - are very much emotional beings and become more so as retirement arrives. The benefits of early retirement are eventually replaced by the reality of surviving longevity. Longevity is the looming spoiler for folks mostly now enjoying the “go-go” years of retirement. In 2024, more Americans will turn 65 than ever before - Peak65(tm) according to research by the Alliance for Lifetime Income. At a median age of 68, the 70 million boomers are still mostly robust and well funded relative to where they may find themselves in a few years. That’s the trend we’re not ready for - and the one that will test the loyalty of clients now hearing about their chances according to Monte Carlo.
Start small. Very few of the managed account converts went in 100% at the start. Most focused on discrete uses - especially retirement accounts. And the clients needed to be open to a different approach.
Annuities have similar opportunities and adoption challenges. Start by complementing investment portfolios. How about reducing exposure to MRDs? Investing for retirement after maxing out on plan contributions? Maybe a supplemental income stream beginning at 80 and running for life? Younger clients can benefit from tax deferral of gains. (A more complete list, The Top Planning Uses of Annuities, can be found at TBD). The added value is to more efficiently solve for specific risks or objectives than can be accomplished by investing. That’s also the explanation for clients used to investment products - this is a better use of your capital.
No one likes change. New ideas and processes are clunky - especially in the early years as demand builds and the inevitable friction points are smoothed by technology and common sense. According to one of the nation’s largest wealth management firms, advisors who are leading this adoption curve are earning as much as 4x the net new assets and 100% more revenue growth than non-users of protection products. That’s a return on investment even a stockbroker would recommend.
Stop! Your 2024 Plan Needs These Six Actions
Stop doing these six things now to help pave the way to your future growth
1. Stop the sloppy segmentation.
Start using segmentation that means something - to the segments. Two issues here trip up companies.
First, tighten up your target markets and use a more durable approach including how and why they buy. Research shows that the buying process is now more important to most consumers than the product itself. Make fans of your clients and business partners based on how you treat the process of becoming a client of yours.
Second, clients are not solo. The retiring boomer age wave means every individual client has family members, friends and business associates you will want but they may have very different needs and preferences. Don’t lump them in with the primary client - offer them options.
2. Stop hiding.
Your visibility is invaluable in a world where information is readily available. What consumers and advisors know about you makes a difference. Don’t be the ubiquitous stock fund manager or financial advisor. Show your stuff - have opinions - tell your story. What are your values? Who are your (happy) clients? Why should we do business with you?
With consumers doing more and more of their own research of investment and financial solutions, you want a good reputation, which will also be a benefit to your business partners like financial advisors.
3. Stop measuring only results
Don’t be the lazy manager that just tells people to produce more. Know exactly how the results you want are created and focus your time on improving the ability to drive results. But be thorough - there are probably layers here worth exposing before you isolate the real drivers that matter.
For example, the sales process of managed accounts and life or annuity products include illustrations and proposals - often tracked as drivers. But those are later stage drivers. Look farther upstream to the use of planning capabilities and make those offers more central to client engagement - and capture the added benefits of additional solutions. Replace the target of managed account sales with new assets and referrals that encourage the bigger win of better relationships.
4. Stop serving marginal clients
The historic bull market run and shifting demographics have likely earned you lots of clients - and even more one-time customers. Time to weed the garden, as they say.
Many “clients” are just people who bought a single product or gave you a small portion of their assets. So they are really just partial clients not devoted clients. Pareto knew about this phenomenon - the 80/20 rule. Connect better with the 20 percent of your clients - secure that base against rising competition. Don’t let the 80 percent distract you. But now purposefully design solutions for the 80 percent. Or let them go. The Big Box stores of financial services are perfecting the scale game. Don’t fight a fight you can’t win in favor of building a “moat” of attention around your ideal clients and make them your castle.
5. Stop offering marginal products
Marginal products are easy to find but hard to stop. They make some money, they may have a great history, they may be someone’s baby. But they tarnish your reputation and hold you back from deploying resources and energy into something better. Who wants to be the portfolio manager of your worst performing fund?
Create the space and redirect the resources - including the people - to something worthy of their best efforts.
6. Stop marketing your brand
First, this is not a conflict with #2 above because the important part of marketing is to connect each of your capabilities with the people who value them - without confusing the clients with other capabilities they don’t want. Your overall brand reflects a higher level set of values and strengths - the products and services and service models need laser focus on the ideal consumers. Clients seeking solutions get a “feeling” from a brand - so double down on that effort outlined above, but make equally sure your individual offerings are noticeable, understandable and resonate with the ideal clients you built them for.
Look Out! Four Unstoppable Trends Are Chasing the Financial Industry at Its Zenith
Four Horsemen of the Apocalypse, an 1887 painting by Viktor Vasnetsov. From left to right are Death, Famine, War, and Conquest.
The advice industry is enjoying record profits - but also faces declining organic growth and historic global uncertainty. No matter what you do or how you do it, your world is being rocked by forces out of your control. Leaders are expected to have answers and the best leaders never waste a good crisis.
“Trending” vs Trend – Know the Difference
Popularity and causation are not the same. Especially in our hyper socialized world, leaders have to be careful not to mistake something that is trending for a true causative trend.
Four Unstoppable Trends
I find people remember stories better than data, so I’m framing the trends using the biblical tale of the Four Horsemen of the Apocalypse. The narrative appears in the Book of Revelations of the New Testament, and The Four Horsemen are the harbingers of doom - the end of the world. Each plays a role in that end game - Conquest, War, Famine and Death. I’m retaining the essential meaning but renaming them for better relevance to our financial advice world.
The Horse of Conquest - aka “Lost Ground”
Winners know when they’ve been beaten. They don’t confuse losing a battle with losing the war. They know when to retreat to higher ground so they preserve their resources to fight again.
Huge chunks of the traditional advice industry have been taken over by new competitors. Commissions are free, beta is free and custody is free.
And yet many companies are hanging on to efforts where they will never win. Those efforts have to stop. They waste precious resources, they drag down your associates, frustrate your clients and distract your focus.
For the advice industry that will mean releasing the marginal effort – which is most common to us in two forms:
Marginal products – if it’s not outstanding, it has to go. It hurts your brand, it’s demoralizing for the team. Who wants to be the PM of your worst performing product?
Marginal clients – the full service advice industry earns more than 80% of its profits from fewer than 20% of its clients.
There are actually two paths here – one is the traditional wealth management objective of serving fewer larger clients and securing all of the assets.
The other is to separate the 80% and focus specifically on their needs. The latter strategy – the “reverse Pareto” – is how the Big Box firms (Fidelity, Schwab, Vanguard) most easily undercut “full service”. Clients tell JD Power these firms deliver “full service”, so don’t ignore them. They take pieces of clients – and then get the rest. So end the madness by creating that separate service model or offering designed specifically for the 80% that they will love. Or let them go.
The Path Forward in the Face of “Lost Ground”
First - STOP.
The discipline of stopping something in flight, ending a business, terminating a product, exiting a market – is so unusual in American business history that it’s worth a pause to consider another industry’s losing battle with competition.
Down Go The Big Three
After World War II, the large four door sedan ruled the road for the first 30 years – until the baby boomers started buying cars. GM, Ford and Chrysler executives enjoyed 90% domestic market share at the peak. But their dogged attachment to that car and its margins put two of the three companies on the road to Chapter 11. The other one escaped – narrowly - saved by the F-150 and the Explorer, the first defendable American SUV.
The biggest barrier to your future success is too often your current success.
2. The Horse of War – aka The Battle with the Consumer
“True customer centricity is an act of extreme humility” observed a great colleague of mine years ago. As an industry we say we are client-focused, but as an industry we are struggling. There are exceptions - empathetic and skilled financial advisors serving clients proactively and effectively. But most of the industry is not earning organic growth.
Consumers believe they can have whatever they want and now we are in a race to deliver against those rising expectations. This is the battle being waged across all service industries – the ability to deliver against the promise. Burger King set us on this road with “have it your way”. Now there’s no turning back as other industries further increase client/consumer expectations for product reliability, ease of communications and delivery. And most have overpromised. Consumer expectations for most industries exceed the ability of companies to deliver. We have to be very careful – look at the pickle health care is in now – and about to get much, much worse.
The Path Forward with the Consumer
- Stop worrying about competitors - Fidelity Chairman Ned Johnson used to admonish the team to worry only the customers not the competition.
- Identify your client “personas” - you have ideal clients. Focus there. As noted above, you’ve already lost the marginal client so move on. Find more. Your ideal client is someone else’s failed connection.
- Build individual solutions and service models for each persona - whatever you do has to be separately designed for each client cohort. Most companies here have multiple products, services or capabilities. Each of these has to stand on its own so each persona feels the attention.
- Align the organization to the consumer - The organizations represented here are organized mostly the same way they were decades ago. Re-engineer your organization around the needs of the consumer. Test: if you have not designated a C suite leader to be the Chief Customer Officer, you are already behind. That’s not a soldier, it’s a general. And must have insight, courage and above all humility, because it’s not easy to stay focused on the consumer. It’s not about the consumer always being right, by the way, because they are not, it is about avoiding the pitfalls of pride and believing the company’s agenda can somehow be more important than the consumers’.
This is not so much a war with the consumer as it is a marriage of two type A personalities, both anxious to get their way. Sometimes they agree to disagree, and sometimes they just disagree. Harmony is fleeting.
3. Horse of Famine – aka The Death of the Salesman
Sales is no longer a dirty word, it’s outright profanity. The fear of being sold has replaced the fear of paying too much. Consumers routinely pay more for convenience, perceived authenticity or mission, and even for people and products they just like or believe in. As long as they don’t feel sold.
An illustration helps.
The Alliance for Lifetime Income holds an annual summit in Washington about Protected Income and it’s a terrific gathering of the industry. A year ago, a consumer panel featured three pretty smart and thoughtful clients who together shared a similarly skeptical view of financial professionals, “They are always trying to sell me something”. The panel that followed them to the stage was made of three very strong financial advisors. The first of which was from NWML, still among the front runners for net new assets, who asked to address the previous panel. “You feel like you are being sold something – but that’s because you just might need something”.
The Path Forward with the Death of the Salesman
- Focus on your reputation. What are you saying - and to whom? What do you sound like to business partners and consumers? Are you confident, authentic, capable - or do you sound like you are selling something? As an industry we tend to speak in proprietary tongues – hard to decipher in the context of our jargon and lengthy disclaimers. Nothing screams, “Salesman!” like a half page of small print accompanying a fairly simple idea or product.
- Provide unmistakable value. What ARE you selling? The value must be made so obvious that even the casual shopper can grasp its importance.
- Get ready for more regulation. Clients aren’t the only people who think we are always selling. Compensation and suitability are following us into a future where our products and services are available everywhere and consumers aren’t sure they need help. Expect more scrutiny, take advantage of underlying message of care. Be wary of fighting back - the trend is pretty clear.
4. The Horse of Death – aka The Impact of Longevity
The best for last.
“Retirement” is trending but “longevity” is the causative trend. People do all kinds of things with their longevity - only one of which is “retirement”. We are really helping facilitate that longevity - partnering with clients to fund the time between their active working years and their death.
That’s a more sobering view than the one typically illustrated by our industry, which tends to favor ads with silver haired seniors playing golf, dancing and enjoying international travel. But it’s the view most consumers will eventually see.
Sober Up
“Retirement crisis” earns 69 million hits in a Google search. The “crisis” is real but very uneven in impact.
For most Americans it will be the inability to cope with the simultaneous demands of healthcare and living. And a mix of the cost of those demands as well as the social, mental and family demands – the impact of unprecedented longevity.
I’ve actually heard senior industry execs say the words, “We know retirement is big thing, but we just don’t hear a lot about it from advisors”. I’m sure the passengers on the Titanic had a glorious time – for the first four days. “Retirement” is lived in stages from the initial “vacation mode” on to usually a more serious and limiting existence, the proverbial go-go, slo-go and no-go trimesters of retirement.
Find Your Corner
Clockwise
- You have both health and wealth. And all too common is the unhappiness of a longer life poorly planned. Pickleball alone can’t make this one all better. You can have plenty of money but be completely unfulfilled, without friends or family – all of the ordinary developments that accompany longevity.
- Bottom right. You don’t have a lot money but your poor health gets you off the hook.
- You have health but no money. You have longevity without the resources to fund your ongoing lifestyle. Health is also relative of course. You can also have longevity without great health.
- You have money but not health. You can achieve quality but you’re undermined by poor health and limited “healthspan”.
This is the inherent unevenness of “retirement”, created by the unevenness of longevity. The youngest Boomers are only 59 – most still of working age. The oldest are 77. The difference in that range is night and day. At 77, both of my parents and all four of my grandparents were still alive and active. Both of my in-laws were dead – one of cancer and the other of Alzheimer’s. Why? And who’s ready?
The Next Big Thing
That condition is about to change – with more speed, volume and impact than most families, hospitals, advisors – basically everyone – is prepared for. A picture tells the story – the darker side of “longevity”:
The new S curve ahead is the hockey stick of declining health – the skyrocketing incidence of older people without the ability to make good decisions and live independently.
This fact is a game changer for the society and an important reason why we don’t characterize “retirement” as the trend – it is really longevity.
This curve is also of course a proxy for the demand for anything associated with people’s slo-go, no-go phases of retirement. Health care, assisted living, home health aides, hospital beds, nurses – all will be in unprecedented demand but with little “warning” and even less ability to meet the need. My NextChapter colleague, Tom West of SEIA, calls this the “musical chairs” game of help – you need a spot for when the music stops. And the “planning oriented” people with good advisors have already taken most of the slots. I hear that all the time from otherwise very smart people, “We will age in place with in-home help”. Which you are going to hire and from where? Your neighbor will become your competition for help.
The Path Forward - The Implications of Longevity
1. Define your relationship with the longevity economy - Know what role your company will play in a society increasingly dominated by the issues of aging. Watch the impact on personal health care, with its own COVID-19 wake up call. Capacity constraints and employee shortages will continue to convert healthcare delivery to more and more patient actualization. Scale alone will drown the current offering and you will hear about it from frustrated clients and their families.
2. Prepare for the self-help world – That scale will force more solutions to be digital, virtual and self-service with the help of better interactions facilitated by AI and Chat. Advisory firms are outgunned – they can’t keep up with the demand. We’ve seen this movie before - when Big Pharma got the ability to market directly to consumers. Tired of waiting for doctors to learn new capabilities, the drug companies hopped on the Today Show and everyone’s evening news, extolling the virtues of their new cures. An especially good example is Ozempic, which earned attention first as a treatment for diabetes and then became a weight loss wonder drug promoted on social media. Get ready for “Ask Your Advisor” - a concept we have rolling today at NextChapter.
3. Focus on the certainty of outcomes. The financial industry has to shift focus from “best efforts” to “certainty of outcomes”. Clients in retirement are quite literally trying to survive with confidence and independence until death. Why is that reality so hard for us to grasp? Because like the consumers we serve, we fear the discussion?
- Winners are fully invested in the certainty of outcomes. Look at the rebirth of the annuity industry. Certainty is the antidote for uncertainty, and defined outcomes are the positive side of a bigger trend favoring “protection”. For an industry built to deliver “performance”, this is a fundamental shift that will be as difficult for incumbent players to execute as it was for Detroit to build a decent small car.
- Being committed to certainty of outcomes, eliminating anxiety, increasing protection – these are the design principles that will determine future product market share. Watch the institutional plan market growing in-plan annuities, script flipping products like BlackRock’s LifePath Paycheck – all geared to helping ensure the success of our clients. Giving clients what they want is not an intellectual compromise.
4. Commit to a better Eco-System - when Detroit was sliding off a cliff in the early 1980s, the recovery required contributions from every part of the auto industry world. The government led the financial bailouts and provided protective tariffs, unions took a hit, suppliers pitched in.
Do you have capabilities, people, content, training – any resources that can help your advisory firm partners? What is the additional investment you will make – and that others might not make? This added support is really about locking arms with advisory firms that are under significant stress to maintain a clientele looking for far more than the firms can provide. AT SCALE. With the typical full service advisory book tipping the scales at 150 households, NO ONE advisor can provide solutions to the full complexity of retirement and longevity planning issues. The gear ratio is all wrong.
This is a huge industry transition – the consumer is up a creek, probably didn’t ask enough questions, probably didn’t do a good job of preparation, and probably didn’t help the advisor enough to do a good job. And we share the blame for not engaging deeply enough or candidly enough.
But this is us. We might have made different choices at a different time. And some elite advisors in fact did that. So the question now is “How can we work together to ensure better outcomes for our clients?” And the answer to that question is the path forward. Among the more obvious areas of friction to resolve is that of the truly connected and coordinated eco-system of capabilities. Incompatible stuff is not tolerable and we can do better.
The Good News
Despite their divine mission, the Four Horsemen failed to deliver the end of the world. And while each of my morbidly illustrated mega trends is unstoppable, smart industry leaders will find their path forward in the areas most sustainable for their capabilities. But we will do it together as never before, or one of those horsemen – one of those trends – will get us. And it doesn’t take four – it just takes one.
This article was adapted from the October 11 session held for the Annual Conference of the Money Management Institute.
The Moments That Matter: Seven Questions Will Make - Or Break - Your Advisory Practice
The text message said it all. “Sorry I went dark. My dad has stage three lung cancer and we’ve been scrambling to deal with that.”
I was wondering about a close friend and colleague. We had connected recently and made plans to work on a project together. The text message cleared up the mystery but also created new priorities for us both. Perhaps because I’m getting older, these messages are becoming more frequent – not just about relatives and friends but also age contemporaries like my friend Gavin Spitzner, just 57 when he died.
An Unexpected Health Event is one of The Seven Moments That Matter, the foundational work of our NextChapter project, The Family Conversation.
Working directly with financial advisors this summer, they confirmed the importance of both the topics and the need to prepare. “I’ve had them all”, declared one advisor in St. Petersburg, FL – a hotspot for aging and longevity planning. And while their level of proactivity with the topics varied, all of the advisors acknowledged the need to be available, show concern and have options.
Listening is the First Line of Engagement
Active listening is important. But proactively discussing the Moments with clients is more difficult, according to the advisors. “I’ve had clients tell me they don’t want to think about how they are at risk for a healthcare issue or having to leave their home”, observed another advisor, “They prefer to wait for the event”. Our part-time consultant to the project, my 89 year old mother, goes even further in her observations of age contemporaries. “Most people just don’t plan”, says the refugee from Hurricane Ian back in September 2022. One of our advisors based in suburban Philadelphia countered, “I disagree. I think most people do plan. They just don’t plan well!”.
Listening actively means allowing emotions to flow. All of the Moments are traumatic for the impacted person, as well as for family members. It is nearly impossible to be fully “prepared” for elder fraud, identity theft, a fall – even a divorce late in life. My mother had everything in pretty good shape and had experienced four of the seven moments herself when she lost her home in the hurricane, notching number five on our list. Listen to her talk about “aging in place”: Moments That Matter: Aging in Place with Steve and Phyllis Gresham
Most clients are still processing the Moment when they contact you. The very act of making contact requires courage – especially if the caller is not the primary client. The unengaged spouse or child that connects with you may not know you or know how you will react. A client of my firm years ago had never met her husband’s advisor and had never so much as written a check. Bill took care of all financial affairs and investments and taxes, while his wife, Jackie was the family CEO and chief medical officer. Bill’s diagnosis of multiple myeloma was a body blow to the family and to Jackie. She did not speak at the first meeting with the advisor, who really did not know Bill very well at all. But the advisor, Annemarie, made Jackie feel at ease, taking Jackie under her protective wing. Jackie would tell me months later when we met that Annemarie “saved her life”.
The Shelf Life of a Moment also Matters
A great colleague of mine once said of the Moments we researched together that each had a “shelf life” – much like a carton of milk. If the client came forward with their event, with the courage to engage, we as advisors have to respond appropriately but also timely. We cannot linger or delay – we only increase the concerns of the client. Our response will also be judged by by the client’s family, who may now be in control of the relationship. There are countless studies and statistics across the industry reporting that “70% of widows fire their husband’s advisor” or other indications that intergenerational transfer of wealth is more the exception than the rule. Our experience indicates that failure to respond quickly and with empathy to a Moment is the trigger leading to those departures.
Gender Matters
Because women typically outlive men, they are both the subject of more “Moments” as well as the responsible party for their resolution. In my mother’s life, she has been the caregiver/decisionmaker for two grandparents, her parents and my father, who died of pancreatic cancer. That role spans nearly my entire lifetime and 2/3 of hers. The disruption caused by longevity is one of the greatest but least appreciated costs to our economy. Most families will be engaged in care – and more in depth and for far longer than they expect. We hear from retirement plan sponsors about employees seeking benefits and time off for eldercare. One Fortune 100 firm reports that unexpected demands of eldercare have exceeded employee time off for maternity and paternity leave. And we know anecdotally that the majority of those caregivers are – and will continue to be – women.
The Health Curveball
Health is such a variable that in my own personal life I see an amazing array of care situations that were not foreseen by the people now consumed by the challenges. Unprecedented longevity is the culprit for most – including the role reversal of an 85 year old parents caring for a 57 year old son with terminal cancer. Or the 62 year old widow living with the 95 year old widower father. Or the 80 year old “traveling companions”, who lost their spouses and now one of them is suffering from severe dementia. What role does the “companion” have relative to the other’s family? My mother pipes in again with her observation that most everyone who’s aging has “body complaints” – nagging issues that are chronic but manageable. “And then there’s the BOOM”, she says, “That’s the one you probably didn’t see coming. But that one changes the game.” In her world most recently, a friend was out for a casual bike ride on her three wheeler and suffered a stroke – during the ride. No warning signs. “And down she went”, says Mom. “She will be OK at some level, but her Maine vacation home is no longer an option”.
Reality Bites
Depressing stuff? Sure, but that’s life, as they say. And all of the Moments That Matter are likely to impact every client family you have today, so your preparation will pay you back many times over. And you have a wide open field of play now because competition is generally unprepared. According to a recent survey of clients and advisors conducted by the Alliance for Lifetime Income, 73% of advisors say they discuss “retirement protection” with their clients – but only 33% of clients agree. That disconnect is a gift to the prepared advisor.
The Rest of the Moments
Keep this list handy and use it to ask clients about their level of preparation. Perhaps not all of them, but question what the plan should be if any of these items hit the family. My mother offers a tip, “Don’t tell the story of another person who had something happen to them. Most older people think mostly about themselves as they age – you can be direct and personal but make it about them”.
- An unexpected family health event – what would you do if your wife suffered a stroke?
- Having trouble making financial decisions – what should we do if your dad can’t manage his account?
- Recently widowed client with adult children – if something happened to Gary, would your kids be able to help you?
- “Gray divorce” creating financial insecurity – how are your assets titled today? Would your kids and his kids be treated fairly?
- Retirees worried about paying for healthcare – what Social Security and Medicare elections have you made? Do you have long-term care insurance? Do you know what a CCRC is?
- Older adults want to age in place – how have you secured your home in the event you cannot climb the stairs? Do you feel safe at night alone?
- Elder financial abuse, fraud and identity theft – how do you protect your account passwords? Do you pay bills online? Do you subscribe to any protection services?
Aging is the New Normal
All of the Moments are common – even daily occurrences among advisory firms. As the population continues to age (the oldest boomers are now 77), the media will be swamped with stories and examples of good planning – and train wrecks. Read mine here. And the media will be training our clients about the risks ahead. So it will be less and less difficult for you to start these Family Conversations with a provocative question about how prepare and protect your client. And their family will be appreciative.
Mom gets the parting shot, “Sometimes fate makes the tough decisions for you”. Onward!
Minding the Trimesters of Retirement
Don’t be fooled by the early stages - longevity has implications.
I’m often challenged by advisors and industry executives, “We don’t hear a lot of complaints from retirees. So why do you say most retirements will be a trainwreck??”
It would be in very poor taste to observe there were very few complaints from the passengers of the Titanic – during the first four days of their voyage.
“Retirement” is a terribly misleading concept. To many people, it is a destination – a long awaited moment to cast off a job they don’t love, a boss they despise or customers that are too demanding. Now it’s their time – time to travel, time to relax, time for hobbies, family or just do nothing. The most popular phrase I hear is “freedom”. And well deserved at that.
But the cruise ship of retirement faces icebergs. And those icebergs are typically life events created by longevity. The longer you live, the more you cruise the SS Retirement, the more chances you have to hit an iceberg.
Never Say “Unsinkable”
The Titanic’s Captain Edward Smith infamously ignored warnings by other ship captains on his course and was on record for years before the tragedy extolling the virtues of modern shipbuilding to the point where he “could not imagine any condition which would cause a ship to founder”. Sounds like a devotee of Monte Carlo simulations who doesn’t acknowledge the statistical reality that 70% likelihood is not a guarantee of success.
But what if the Titanic’s passengers had been told there was only a 35% chance of success – albeit with a short sidetrip in a lifeboat. Would John Jacob Astor IV, a billionaire in today’s dollars, have bought that ticket for himself – and his pregnant wife? She survived – the child was born – he drowned at 47 along with 65% of the passengers and crew.
Mind the Trimesters – Go-Go, Slow-Go, No-Go
Way back when I was an advisor to families, I met a couple who had already quit their jobs. At 61 and 60, Dick and Ginny were active, true go-go retirees. They had his pension and were financially secure. From me, their first ever advisor, they were looking more for validation of their choices. Most of my perspective about retirement was learned watching my older relatives – four grandparents and three great-grandparents ( see more: https://nextchapterinnovation.com/my-family-made-me-do-it/ ).
“Tell me about your plans”, I asked. They enthusiastically described winters of skiing and summers of sailing their boat along the coast of Nova Scotia. “Wow – that sounds great”, I agreed, “So what’s next – when one of you may not be up for that effort?”. I went on to share how it’s very common to have great plans but that Mother Nature has her own and longevity can be a spoiler. There are strategies and location choices that can help ease the transitions.
The look on their faces said it all – I’d overstepped their expectation for the meeting. And just that quickly, they thanked me. And left my office. And that was my first encounter with the downside of being candid about retirement planning.
A few weeks later they called and asked for another meeting. “We’ve made some decisions”, they shared. “First, we really appreciate what you said – we weren’t ready to hear it”. They went on to say they listened and had taken steps. They scrapped the Nova Scotia plan in favor of Lake Champlain in Vermont where they could store their boat year round and also buy a condo in the same town as their “most responsible” child, who welcomed the idea. They also wanted to supplement the pension with a more protected form of income and liked the idea of an annuity in lieu of some of their mutual funds. Like a paycheck, they reasoned.
Reality Check, Paycheck and Checking Out
All good – but there was more. The “slow go” phase of retirement was daunting to them, but they really disliked the “no go” vision. “We have a plan for that” Dick shared with some mystery…
Rolling the story forward, Dick and Ginny campaigned successfully for what became only the second assisted suicide bill in the nation. The governor of Vermont signed the bill on his father’s birthday with Dick standing over his shoulder. Death with Dignity Vermont was born of their dedication to doing things their way in retirement and reflected the determination and energy that defined them both. I was so proud to see them on the front page of the New York Times.
Reconnecting with Ginny upon Dick’s death nearly thirty years after our first meeting, she recalled that day. Even how much they appreciated the “reality check and the paycheck” – and she volunteered, “I still have that annuity – it’s been great”.
Real Retirement Planning Takes Courage
The facts are stubborn – most of our clients are not prepared. Nearly half of people with more than $100k in a retirement plan have no advisor, no financial plan and – we know – not enough money to retire and maintain their lifestyle.
You can say, “Not my clients”, but are they ready to finance 30-40 years of additional longevity? How do you know? How do they know? Most people still underestimate their longevity so what plans do you have for them to hedge that risk?
What about those trimesters of retirement? Have you had the conversation with every client close to retirement age or already in retirement about the second and third trimesters? What does “slow go” imply for their plan – including where they will live? And what about “no go” when one partner or spouse is gone. My mom’s in that phase now with very different circumstances from the other two trimesters.
You Can’t Fake Retirement Planning
The advisors who sell a sunny retirement funded by a balanced investment portfolio fit only with multimillionaire clients who can keep their spending in check. And that is a tiny percentage of the population. For all of the other clients and advisors, there is real work to be done with trade-offs and pivots as the inevitable challenges of longevity pop up. Professional imposters won’t last and naïve clients will fail. The real advisors will protect their clients – and earn both unprecedented growth and the feeling of achievement. Do good and feel good.