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.
Retirement on the Eve of Destruction
The year is 1965. Vietnam, racial tension, and voting rights are all over the news and both the Cuban missile crisis and the assassination of President Kennedy are open wounds for most Americans. This is crazy, we’ve had enough, said the youth of America now also facing the draft for a conflict they decried. Songwriter PF Sloan put their anger to music with the “Eve of Destruction”. Radio stations around the world banned the tune and some in the media said it represented everything wrong with America’s youth.
That youth was the Baby Boomers. And they are frustrated again. This time the object of their wrath is not challenges to their youth, it is to their age. They are worried about being able to continue their independence in retirement. Why is this so complicated??
Beware the Boomer
The demographic wrecking ball of Boomerism has been steamrolling industries for sixty years. Ask Detroit, Sears, Sony, IBM (Wang?!) and AT&T (the original version). Don’t mess with these guys. They want it their way and they reward businesses that step up. If you don’t – ask Blockbuster or an Oldsmobile dealer what happens. Right, you can’t….
What is particularly interesting about the current environment is that as a society we possess insights and tools more advanced than at any time in our history and yet we continue to be dogged by a pace of change more consistent with our past. That feels to me like a “will” issue instead of a “skill” issue and therefore completely in our control.
Good Results on the Surface, Weakness Underneath
The pandemic has not helped. COVID accelerated some areas of demand – health care, retirement, virtual meetings and a hybrid workplace – but at the same time seems to have slowed the reaction time of companies, which depend more than they realized on in-person interaction. Inertia of existing systems and mostly supportive markets have been supporting company earnings, but the underlying weakness is clear when we examine organic growth. I’m not sure when and how corporate leaders will regain speed. Urgency is hard to muster when you have good earnings but the changes needed to adapt to hybrid work are underestimated.
Three Forces Already Ahead –
Three essential components of our advice world are now wildly changed from their status pre-pandemic and even from a few months ago. Reactions abound, but so far more talk than action.
- Investing – the ink is barely dry on most obituaries for the 4% rule and now there’s a 4% T-bill again and a 5% CD. Inflation is a lot higher but haven’t we seen this movie before? Wait a minute – no – most financial advisors have no experience at all with meaningful levels of lost purchasing power. Didn’t adjustable rate mortgages just reset to DOUBLE? Is my oil bill the only one that is significantly higher? And electric, and property tax, and eggs and just about everything you buy?? You know who does remember inflation? Baby Boomer retiree clients. And it’s a bad memory. The winner products will answer the questions being asked now by clients – What is the risk? How will this product help me achieve my objectives? Planning has replaced investing as the driver of retirement success, yet only a small minority of advisory firm clients nationwide say they have a financial plan. What are the chances an advisor can hold on to clients content not to know what they will need – until they need to know?
- Growing the Practice - Everyone’s talking acquisition. And that’s a strategy but it’s not organic growth. The lesson learned by other Boomerized industries is that when you start buying growth instead of creating growth you quickly lose the ability to create and to innovate. Big Pharma has this disease and it’s palpable. In a rip roaring bull market for the advice provided by good advisors (see more https://theexecutionproject.com/out-with-the-old-bull-in-with-a-new-bull/ ), good advisors and their firms are indeed winning business from competitors. What are they selling? Protection. Preservation of hard won gains, careful planning to survive retirement, limiting the risk of outliving your money, protecting against the costs of healthcare. “Growth” is a new game but the metrics of success are the same – if you aren’t earning net new assets (retention + consolidation) and higher share of wallet, you are in decline. Period. You don’t see Fidelity, Schwab, Vanguard buying books of business and laying off HQ staff. Just sayin’….
- Leading the Business – Holy cow. Where do you start with the new realities of business? Large firms and small have been turned upside down by workplace preferences, training challenges, development issues, diversity requirements and expanding customer service needs. Not to mention the retirement wave of older advisors and the lack of interest from young people. “Leading” is a much different vocation than “running” the business. The myriad demands of the current workplace have even the most skilled execs scratching their heads, which indicates real trouble for financial services types that are too often just older portfolio managers or sales folk. I saw a pretty solid investment firm nuke three long-time employees a few weeks ago because of “the market”. For the record, that market is still multiples higher than it was for nearly all of the careers of the terminated professionals. So what happened? Beware the “margin defenders” – they are the least capable of handling the new leadership realities. Remember when Ford President, Bob McNamara shot down the idea of smaller cars? Innovation, creativity, genuine interest in the business, genuine interest in people – all are characteristics of the new leader. If you don’t have what it takes, go back up to #2 above and find a buyer.
Pareto’s Revenge: Embrace the Middle
Savvy advisors and their firms are indeed on to these issues. We call those people “winners” because they look at the market realities and take action – and take advantage. GM vs. Toyota and BMW – how’d that turn out? Why is it that separate organizations of very smart people can “see” completely different future paths? Is it just their love of current success? One clue has always been to see not how the best clients are doing – or feeling or saying – but to look at the middle. How does the average client, the typical client, the median client fare in your current state? Too much focus on the top avoids the reality check of your depth and breadth. Even in a single advisory book. Retirement is a complex array of dates and needs that are defying many advisors’ ability to keep up. That’s trouble for sure – and a historic opportunity for growth minded professionals who are prepared to offer an alternative.
One Upping the Boomers
Destruction is only bad if the object of destruction is worth retaining. The 1965 song called out Vietnam, the draft, the threat of nuclear war, discrimination, Middle East conflict – nothing good according to most everyone of any age. 76 million American Baby Boomers would now add their fear of aging poorly and poor. But take note – the rising cohort of Millennials is actually bigger than the Boomers and has its own list of complaints including climate change and diversity. They will shape the world as their parents have with impacts already visible in banking, electronics and retailing. And they are new growing power in financial services.
Where Boomers and their Millennial kids are joining forces today is around simplicity of process and the assurance of better outcomes. The Boomers pressed for change like ATMs and toll free telephone numbers while their offspring double down on access and ease with mobile apps and simpler products. What Boomer expected brokerage commissions of zero and ability to send your own wire transfer? Millennials expecting both are also asking why can’t results be guaranteed? Every generation sees injustice in the current state and first finds its voice sharing its frustration with its parents. Demand more, they say – and they are right to expect better. Retirement is a family affair, and the Millennials will be riding shotgun for their parents and deciding which advisors and firms will be their choices when they have more assets. Top advisors seeking growth for years to come are including these important consumers into the plans of their current clients and have the lead for retention and future growth. Follow another winning consumer formula – simplicity and ease of use – and see how Apple products appeal to both generations or how easy both find the Minute Clinic at CVS.
JOIN US February 21 in Brooklyn as we take on Investing, Growth and Leadership at Retirement on the Eve of Disruption, presented by Next Chapter and Financial Advisor
Finding Jackie
Jackie is the ideal client. She is busy with her family and friends, she doesn’t have time for worrying about the markets. She trusts her financial advisor, Anna. Her savings are divided among a managed account and annuities. She collects Social Security. Her adult children all work with her advisor. She loves spending time with her grandchildren and she does not know who Jerome Powell is or where the Dow ended yesterday. Jackie has financial peace of mind.
But Jackie was not always this content. She did not know Anna until her husband, Bill was diagnosed with terminal cancer.
Bill was an engineer. He built and repaired computers for fun. He did the taxes. He built a deck on the back of the family home for Jackie and the kids. He was a pretty good investor and always told Jackie, “Don’t pay fees”. He did not interact with the advisor assigned to his account – Anna – resisting all of her attempts to connect.
The diagnosis of multiple myeloma hit Jackie like a freight train. Busy with her children and her job in the local school system, she left all the financial and investment duties to Bill. She had never written a check. The implications of her forward path were now crashing down on her. She left her job to care for her husband.
Bill’s illness changed his view of Anna. He reached out to her and asked for a meeting – the first time Anna would meet Jackie. Jackie was apprehensive but Anna immediately put her at ease. Anna smiles when she shares the nickname given her by one of her clients, “Mama Bear”. Jackie would later tell me, “She saved my life”.
Bill helped Jackie understand the family financial picture, including the household expenses, checking and investment accounts – even the tax returns. They spent time together and with their adult children and grandchildren. Jackie built a crib for one of the babies under the watchful eye of Bill, who had grown too weak to do the work himself.
Bill’s initial longevity prognosis was 3-4 years. He and Jackie enjoyed seven years together – no doubt due to her attentive care and positive energy.
Jackie and Anna developed a trusting relationship. Mama Bear had never really connected with Bill – he was in her “book” but for sure reflected the definition of an “unengaged” client. Anna had never met Jackie or any of the couple’s four adult children. Bill rebuffed all of Anna’s offers of financial planning, as well as retirement investing ideas. He scorned fees of all kinds – and pointedly told Jackie never to invest in either a fee based managed account or an annuity.
Jackie was not Anna’s first widowed client, and also not the first to reveal a perspective about retirement investing much different from her spouse. Stung by the feeling of hopelessness when Bill first received his diagnosis, Jackie told Anna she wanted to make sure her children never worried about her. Jackie wanted as much structure as possible, she said, with very clear plans in place. Jackie and Anna agreed on managing Jackie’s assets with a combination of a managed account and two annuities.
Hiding in Plain Sight
Most financial advisors have a Jackie – actually more than one. But many of those Jackies are hidden from view because too many advisors know only Bill and never get the full family view. To be clear, Jackie’s Bill was equally to blame for Anna not knowing about Jackie and their kids. He had control and didn’t think he would lose it. Anna had asked, but was denied. After a point she simply stopped asking.
When we look more carefully at advisor productivity today, we see significant opportunity in that “unengaged” population. At Fidelity, my team estimated the potential untapped business at 75-80% of the total client book and assets roughly equal to the AUA already engaged with the advisor. That’s compelling – basically the chance to double AUA. Firms including Morgan Stanley have made the same analysis, drawn the same conclusions and are now pointing strategies to engage those clients. The ALI personas are in that effort.
We also know that many – maybe most? – advisors are not engaging fully with the family members beyond the primary decision maker. IWI published a survey before the pandemic that indicated clients WITH advisors said only 42% of advisors included their spouse in reviews and many fewer knew the kids. Considering the growing power of women as financial decisionmakers and the importance of Gen X, Y and Millennial inheritors, this seems like a practice management no-brainer.
The first step is to understand exactly who these unengaged people are and what would help them engage. Sometimes it’s offering a different product or service than the clients know you have, but most of the time the key is reaching out in a way that says you know who they are and what might they be looking for from an advisor. Anna didn’t know about Jackie, but Jackie wasn’t looking for Anna either – and didn’t know she would need Anna until of course she did. Jackie, like many unengaged family members, had no idea of what a financial advisor would do and was completely intimidated by what she thought she might have to know in order to not feel stupid or insecure in talking with Anna.
The Alliance for Lifetime Income has taken up the challenge of identifying Jackie and how to talk to her. The ALI has documented six “personas” all ideal for engagement around retirement income topics but often overlooked by advisors. It is telling that three of the six are women and the other three are couples. Advisory firms and financial professionals have confirmed these client opportunities and the ALI is working directly with national broker/dealers to better engage the six personas. See more here:
https://resources.protectedincome.org/personas.aspx
The rolling demographic age wave is still in its early stages, and the best opportunities for growing an advisory practice are right under the noses of even the very best financial professionals. Truly hiding in plain sight. They are all looking for more certainty, more structure, some tax benefits when possible and – most of all – someone who cares enough to come looking for them.
Steve Gresham is on a mission to improve the retirement outcomes for clients and make delivery easier for advisors and their firms. He learned at lot managing the relationship strategy at Fidelity Investments, where he was the evp and head of the Private Client Group. Now he leads an industry effort pointed at reimagining “retirement”, Next Chapter, with 60+ companies and 120 leaders, and a consulting firm that engages directly with top firms and broker/dealers, The Execution Project. See more at https://theexecutionproject.com/
2022 Year in Review
My longtime editor and friend, Evan Simonoff of FA asked me for a review of 2022.
Two words - “good riddance”. And I’m pretty sure I’m not alone.
My professional view has certainly been impacted by personal issues including Hurricane Ian, who left my 88 year old mother homeless despite an otherwise air-tight retirement plan. And I’m absolutely certain that anyone hating 2022 also has personal reasons. Isn’t that the COVID lesson - that work and home and family are integrated??
So with apologies to the strict business types, my Year in Review 2022 is a mixed bag of observations, potential trends, and lamentable realities. I want to acknowledge good works but they are currently overpowered by forces our industry continues to resist. We love the bull market fueled results - but that rising tide may have peaked. Time to plan accordingly. For good measure, I’ve made a list of 13. Lucky 13 - take that 2022.
- Inflation - OMG - okay, so I am starting with the most important one. Ken Dychtwald’s retirement research shows clients picked inflation as the runaway #1 worry. Significant because healthcare had dominated these surveys for years with no real challengers. But then again, inflation has been dormant. This is not historical reality, which is one reason why it is said of history that ignorance of its teachings leads to repeating the mistakes. As an industry sage, I am able to remember my first year in the markets as an intern when TBills were 15%. No typo here. The CPI took back 13.5% No typo there. $1 million nest egg paid you $150,000 risk free, state tax free, and with a modest real return. After Fed Chairman Volcker slayed the inflation dragon - my first year as an investment manager - 1982 - the asset class winner was the long 30 year Tbond at 52% total return. No typo there. But some great memories….The drivers of the New Inflation are here to stay for awhile - it’s not all monetary policy, which is now totally hackable by any hedge fund anyway. Structural issues will take years to resolve. Expect more trouble ahead.
- Airlines are not the same. For my travel money, Delta has its act together and it matters. Newbie on the block, Avelo, has made it easier to get to Baby Boomer retirement hot spots and most every plane is full. Some growing pains but keep going!
- We are not alone - the globalization of bad things. Marsh McLennan’s no nonsense ceo, Dan Glaser, said it well. On stage at the EY Insurance Executive Leadership Summit in May, he observed, “Who knew we’d have to factor in thermonuclear war as a business risk?” Most Americans have long lived the delusion we have no real enemies beyond our borders. But even the most isolationist Red Stater has learned about global interdependency when trying to fix a truck or tractor dependent on a Taiwanese microchip. Don’t get me started on gas prices. Or that we need baby formula and find out where it’s made - or not made. Information theft and other non-US based electronic invasions impacted countless schools and utilities and ordinary businesses. No one is alone - or safe - there is no way off this grid. Best to plan for the worst.
- There is no reason to drink bad wine. I wanted to hate the Vivino app and WSJ Wine but I love them both. Convenience, convenience, convenience. And both get you good stuff for good prices. I never thought I’d drink a no-name something from a publishing company - and like it. Go with this flow. Pun intended.
- Sneakers with business suits is wrong on many levels. As are white soled dark shoes. Attention men, Larry Fink wears jeans and a sport coat and looks normal. Don’t mix mediums. Wearing hats on Zoom is ok - but only if you have a company lid or are undergoing dermatologist-directed treatment for skin issues (me). And COVID beards should all be evaluated by people other than us. Listen to them.
- Most retirement planning is a fraud. The most important determinants of a solid plan require conjecture - best guesses. How long will you live? What will your health be? What will markets and rates and inflation do to you? Single scenario retirement planning is just malpractice. Advisors I’ve interviewed say you do the plan based on best guesses and then again with the potential train wrecks. It’s like flying, one said, you arrive at the airport, hopeful for your vacation - and the flight is cancelled. Now what? Plan for Plan B - and Plan C and Plan D…..Ask my mother, who at 88 was modestly covered for everything. Until she was homeless. Anyone think of that? She did own a share in a CCRC (please know what that is BTW) to ensure availability of long term care. Thank goodness - she will go there. Many many many others not so lucky.
- Mother Nature is one pissed off lady. My mom and her neighbors were blown up by Ian. Much of the West is besieged by wildfires. Atlanta is colder than NYC. Heat waves and drought have compromised our farms. Historic flooding in places you don’t think of as having too much water. And we will never be rid of lethal viruses - 290 of which killed humans last year. I don’t care what your politics are, we need to be aware and better prepared for threats created by this rogue. She’s mad at something - and i suspect trying to send us a message to take seriously the threats to our planet that are growing and will not ever retreat.
- I thought Top Gun Maverick would be disappointing. I was so wrong. So is the decision to see it on your mobile device. Must see big screen.
- Retirement is about protecting, not investing. Hanging on for dear life as the markets retreat, financial advisors have to accept investments as a means to an end and not the Main Event. A flash poll of advisors conducted early in 2022 by FA found that when seeking to “reduce risk” for clients, 85% looked to the portfolio asset allocation. A Ken Dychtwald/Age Wave finding this year says that more than half our clients think that “multiple” financial products are needed to address retirement funding needs. Very few people have enough money to make it through retirement. There is leverage for those limited funds in protection strategies using insurance capabilities. Get over the stigma. - the clients don’t share it. And watch for more products that provide more assured outcomes like LifePath Paycheck from BlackRock.
- Those Baby Boomers are still driving the gravy train. Sick of hearing about them you may be but they have 76% of the assets and own the most products that pay. Note that when the bull market last bottomed in 2009, their median age was only 53. Now it’s 66 and with that age comes a very different list of priorities. Refresh every client like it’s 2009. What now?
- Comfort is in for good. Casual business clothes may be the best innovation in history. Stretchy material hides some of that Zoom-belly, and we can travel and commute and spill stuff…LuLu - we love you - along with Alphalete, Rawgear, BYLT, Hoka shoes - many of which were born in the pandemic. I’m never giving up my Hermes ties or scarves but there is a new, more breathable world out there!
- Hybrid work is here to stay but you better master it quick. WFM is a godsend for time starved commuters, self motivated stars, employees with family care needs and geographically dispersed teams. And even there risks abound. Productivity is dropping in many firms dependent on collaboration and internal social networks - or that depend on engaged customer service. From a “future view”, I don’t know how younger employees get coached and grow without the leaders engaged. I don’t think you can pay people to care and I don’t think we have to employ people who don’t.
- Connectivity is productivity. Common to all nine items on the list above is that success is based on an ecosystem of delivery. Sole practitioners, individual contributors cannot achieve results in a complex world. Whether we are talking about wine, retirement planning or supportive shoes, all need the combination of accurate data driving better allocations of manufacturing resources measured for higher quality and delivered by empathetic distribution. Connectivity is created by leaders whose humility permits them to learn continuously and make adjustments. WSJ Wine is more of a distribution and customer service wonder than a product masterpiece. We know these are winery overruns. But who cares? If an employee proves they can be productive at home, who cares? Look at the end product or service as the primary guide and make your real work the seamless connectivity of the ecosystem. Too often we try to solve for one of the parts and cramp the rest of the system. Solving for WFM is backward. Find out if your product or service delivery can be supported by at-home workers and avoid the coming managerial crisis in evaluating at-home people vs on-site people. Is that really where we want to invest our time?
What Are You Afraid Of?
One of the most difficult situations I’ve experienced in my life was the sudden homelessness of my 88 year mother – driven from her longtime retirement sanctuary in Sanibel, Florida by Cat 4 Hurricane Ian on September 28. For her, truly paradise lost.
Modest spenders, my parents lived off of four annuities and a New York State pension – all benefits from my father’s long academic medical career. They lived below their means and managed to add a bit to their bank account every month for years and more after my dad passed away in 2016.
If you asked my mother at any point in her retirement what she might be afraid of, she would answer, “I’m afraid I won’t be able to live in my home”. She battled the idea of a CCRC on the mainland when I pressed them to have resources for long-term care. My dad thought it was a great idea. He got in trouble with her….but she finally relented with the hostile promise she would never live there.
My mom’s view about the CCRC has changed twice. First when my dad was diagnosed with pancreatic cancer and had a convenient place to receive the care he needed. Second when she realized she will not re-occupy her house. Many of her friends and neighbors are not so lucky – too many lacked home insurance and many more have insufficient resources to fund their longevity.
If We See Something, We Have to Say Something
I watch and interview advisors as they navigate the current marketplace and I am always impressed with the ones that can say really tough stuff to clients but do so in a way that is not offensive.
Walk a Day in Client Shoes
Ponder for a moment a situation when you got good advice you didn’t exactly ask for. Someone stepped forward and gave you advice on a tough topic or in a tough situation. Something you didn’t want to hear or hoped was not true because you sort of knew it was.
Who was it? Trust plays a huge role in providing effective advice on any subject and trust is built on history. History of knowing the person - a relative, family member, a friend - or a professional whose advice has been good.
Get Good at Bad News
How did the person communicate? Did you get a text? “Steve, your insurance coverage is completely inadequate and your asset allocation is all wrong”. Thanks, right? No, they probably talked with you - live - and invited your response. You might have walked away in a huff - but you probably didn’t. Their demeanor was probably serious - but didn’t have to be if you have a good sense of humor.
What did you do? If a trustworthy source communicated openly with you, you probably at least thought about taking action. And you now know there’s an action that someone who cares thinks you should take.
Now we have the headset for asking, “What are you afraid of?” Done right, asking what someone fears is the first step to making them feel safe.
What you say is less important than how you say it. Most communication is non-verbal. Your experience has to be known to be respected. Why you? Why follow?
Have an Opinion
If you are empathetic - and informed - you have the gift of credibility. A great friend and manager used to say that the secret to effectiveness is:
Be available.
Be concerned.
Be informed.
Have an opinion.
Advising clients is not a passive activity. In our world, advice is both a noun and a verb. The best advisors have earned the right to have an opinion.
Fear is Good
Fear - it is said by scientists - is actually a good thing. It energizes the body, sharpens the mind and prepares you to confront what you fear. Being afraid of something doesn’t mean you won’t do anything.
The best advisors channel their clients’ fears into actions. Those fears are often the stimulus to take new steps to match with changing conditions. Like drops in the market or an unexpected health event. A new client fear is actually a call to action - an opportunity for advisors to add value.
Fear Prefers Company
Have your best stories at hand. Ask permission to tell clients about other clients like them, says storytelling master, John Diehl. Bad stuff doesn’t really play favorites - it gets around like wildfire - or mold. It has the 1-2 punch of either a bad impact or bad timing. Or both. Either way, you’ve seen it before with other clients and the newly impacted folks can find some comfort in your experience. So share.
The bottom line is that retirement will always be a new journey for every new retiree. You are the guide by their side who may not see the pothole in the road but you know it’s out there. And you know what to do when it flats the tire.
The real fear most vexing to clients is that many - maybe most - are afraid they will never find you.
FinTech vs FinTalk
I marvel at the brilliance and passion of inventors. Today’s FinTech pioneers have that stuff and challenge convention with ideas that shame our legacy systems. These geniuses cannot understand why clunky incumbent “tech” persists when better ideas are here for the taking.
And yet most of the inventions never get commercial traction. Demos aplenty and lots of “great meetings” raise hopes that slowly drain away. A sort of “innovation expiration” sets in as the effort loses momentum - and funding - and the innovators retreat to ponder their next move.
Don’t Leave - We NEED You!
We just don’t know it most of the time.
I’ve seen five different causes of the disconnect between much needed innovation and actual success. They are all related and therefore can be either be the spark of rejection or the nail in the coffin of failure.
Numbers - Houston, We Have a Proliferation Problem
@MichaelKitces and team are just brilliant. One of their first great works was the now widely known FinTech Industry placemat of capabilities - all on one page. Innovation has forced some font size shrinkage but that single sheet still captures the landscape. And what a roster it is:
- 186 capabilities in 29 categories
- 24 portfolio reporting applications
- 14 financial planning packages
Daunting.
By comparison, there are a lot of stocks and many more bonds but their world is simplified into S&P’s 11 sectors and the bond world’s 14.
Consumer products are more disciplined - consider the five categories of toothpaste. Even cars sport only 12 categories according to JD Power (though mechanics claim 20 - innovators are everywhere).
I know some CIOs at big companies. They cannot begin to understand the number of offerings. But most also fail to investigate. Do they have active efforts going to find new ideas? More on that in a minute.
Priorities - If Everything is Important, Nothing’s Important
A recent report from a top consulting firm outlines the top most important trends in tech for 2022: 14!
I’ve been in a lot of strategic planning sessions over the years and I’ve not yet seen or given a presentation about 14 trends. And I’ve never seen any successful corporate plan with so many objectives. I know that’s not the point of the work but who and how and where do executive teams find their target?
Corporate focus is a process - it has to have an objective easily conveyed to the full team but also must emerge from the company’s capabilities and values and existing foundation of success. A true company success is a build - not of an entirely new house on raw land but rather improvements to an existing structure.
Don’t view that foundation as a constraint, view it as the solid base on which to grow. Call that a Kodak moment - since Kodak had it and lost it.
Breaking Through - The Pursuit of Acceptance
Another top consulting executive was asked recently about InsurTech and brilliantly observed that most die on the runway having spent most of their venture backing on buying awareness they hope will translate into acceptance. He laments the spend of up to 80% on promotional web search. “The only people making money on that innovation are Facebook and Google”. Wow.
He went on to say the industry needs to work harder to identify emerging technologies and the entrepreneurs behind those innovations. Allianz is one of the firms that has stepped up - creating their Onramp Insurance Accelerator with Securian as well as making investments in capabilities such as LifeYield.
ROI - Why Should I Buy?
This one is on the FinTech firms. Without a clear connection to the buying firm’s bottom line, I cannot imagine any real company writing a real check. And I’ve sat in that chair.
A burden carried by many (most?) FinTechies is that they are unapologetically Techies. But the buyers are business people too often of a totally different background, orientation and personal motivation. One of the most entertaining moments in corporate life is gathering the senior team with a FinTech innovator team and watching the awkward proceedings. Nothing in common - even the lunch selections can be odd as they reinforce the differences.
Integration - Don’t Be an Island, Join an EcoSystem
No company is buying any application for an open hole. There is something there already and it is connected to a bunch of other stuff. None of it might be good. Some of it could be - but you don’t know. And you don’t know what they know or think. Connectivity is all that matters and the ability to connect is as important as the capability. Don’t be the only grounded three prong plug in a workshop full of two prong outlets.
How do you connect??
Adoption - A Problem of Design
My favorite for last. This element is owned jointly by buyer and seller of FinTech capabilities.
First we pick on the seller - did you design your product to be excellent or to intuitively and naturally solve a problem? The sale of “better” is a lot more difficult than “easier”. Most adoption of everything is a function of greater ease along with improved results - so adoption is a function of the DESIGN. The owner’s manual is history - don’t force it on an already busy FinServ.
But don’t walk away Buyer. How many enterprise software purchases have failed to attach a full budget for training and integration?? “We can figure it out and save…” is one of the most devious enemies of corporate success. A race car in the hands of a driver who can’t drive is a …. stupid waste of money. But you get to say you own one….I guess…. IT procurement checks a box and gets to blame the business for failure to drive.
So with admonitions to all sides of the FinTech movement - let’s all just get along and start working together. The upside is worth the effort.
Give me call - we can help.