Steve Gresham

This is Us

Mention “financial wellness” to 10 attendees of a FinTech conference and you might get 15 definitions. Ask 10 clients and you might have the same result. The label is intriguing and appealing, but there’s an onion here that needs peeling. Leave out the “financial” angle for a moment and consider that wellness can be evaluated through the different dimensions of:

• Physical wellness
• Emotional wellness
• Social wellness
• Intellectual wellness
• Spiritual wellness
• Environmental wellness
• Occupational wellness

Credit: blog.bestself.co

“Wellness” is a noun – but also a verb. Webster says that wellness is “the state of being in good health, especially as an actively pursued goal (emphasis mine), …as in.. “measures of a patient’s progress toward wellness”. So wellness is also a process in pursuit of the goal of wellness.

When we combine these perspectives, “financial” wellness is easier to define, but harder to accomplish. Money is relevant to all seven of the dimensions listed above. Having money can help fund solutions and opportunities to improve most aspects of wellness. In addition, wellness is dynamic – changing as we age, rising and falling in importance. What jumps out to me is the complexity of achieving “wellness” – and the opportunity to employ both digital and human support to finance wellness. 

Many top advisors – and clients -- characterize financial wellness as “peace of mind”. And when you unpack the headline you locate the dimensions listed above, as well as the process of ongoing contact, review and reinforcement that describes the best advisor/client working relationships in wealth management. At minimum, the industry needs to support a holistic approach to clients’ new found longevity to help them discover and address their growing and changing needs for “peace of mind”. It is critical to appreciate that we are all traveling together on a journey none of us has completed before – growing awareness of our own longevity and how our world view is changing. “Aging” clients and advisors are not abstract population cohorts – they’re us!

So the key to “financial wellness” is the entirely subjective definition of “personal peace of mind”, as well as the recognition that it’s also a process that will evolve as the different dimensions listed above present themselves at different times. A more broadly aging society led by the massive Baby Boomer cohort is discovering the importance of life balance as the median hits 66 this year – and the oldest are 76. At those ages, our clients (and some of our advisors!) have growing awareness and appreciation for the value of emotional, spiritual and intellectual wellness. Their need for mobility supports physical wellness. Being relevant and engaged keeps many working for occupational wellness. And perhaps most important in later ages is the importance of social and environmental wellness – to be with others and to live safely and independently. If we are paying attention, financial wellness is already teed up for us to hit head on. 

And that’s the real point of financial wellness. Financial industry leaders that talk about financial wellness are declaring the path forward for the industry -- the objective of the advisor/client/digital working relationship. They are challenging us to align in support of the clients’ personal peace of mind and the growing, shifting aspects of wellness as they discover more perspective. And it’s the moment of truth for financial advisors, many of whom are challenged to muster the empathy and insight needed to fully support the clients, as well as the flexibility and interest to engage effective technology to help them deliver more effectively across their entire clientele.

Financial wellness is becoming the True North of the wealth management industry, and it’s a journey we are all taking. Together. 

by Steve Gresham

Follow the White Flags – To Success

Streaming one of those endless crime series recently, I watched the lead investigator offer bad news at a press conference - “The rescue mission has now shifted to a recovery effort”. A little dramatic for our mundane world of retirement planning - but maybe not. I wrote awhile back that most of us heading toward our next chapter have made mistakes in our preparation 

https://www.fa-mag.com/news/the-oh-sh-t-moments-of-retirement-planning-67066.html

Many of those mistakes are financial miscalculations - I know I will need to seriously restrict my spending. Some are investing errors – taking too little risk or too much. The most impactful seem to involve family and healthcare when the inevitable but still unexpected impacts of longevity take their toll. And even the lucky few not derailed by financial, investment or family issues may be weighed down by the importance of living a meaningful life. That’s a lot of potential planning potholes to navigate. Every family will fall into one or more – and most will need help to recover. The markets are not helping. Neither is the stubborn pandemic or global instability or domestic politics. Most people are worried about a lot of things. 

So get ready for the equally inevitable shift in the retirement planning profession from a mission of funding a “next chapter” to recovering a failed retirement plan. Our observations in the Next Chapter industry initiative (https://theexecutionproject.com/community/)

are clear – the industry is not ready for this job. The contrast I’d offer is that we will be shifting from mostly selling new cars to fixing them when they’ve broken down. Complementary roles for sure in my car dealerships, but not the same.

I’ve long advocated for a more realistic view of retirement planning that tracks with the experiences of leading advisors and how they help real clients with real life. Those pros tell us over and over about clients hoping to stretch savings to cover a preferred lifestyle instead of first determining the level of their retirement paycheck. They repeat stories of life events and healthcare “surprises” that are really only surprises if you think you are immune to the impacts of aging. I will never forget an interaction with the ceo of a global financial firm who called wondering if he should be added to the accounts of his father….now that Dad turned 91. I wonder what precautions are used at his company for millions of people vulnerable to mistakes and exploitation in their later years - long before 91 – especially since 25% of people aged 65+ have dementia of some kind. Common sense is a great ally when planning…..

The implications of “retirement recovery” begin with a few very uncomfortable conditions among advisors, their firms, the supporting cast of product companies - and the clients themselves. Each plays a part to right the ship. The inconvenient truth is that of course each has contributed in some way to the problem of unpreparedness. To really help Americans have a fighting chance, each will have to own their role in the current state and prepare recovery tactics. That’s now. Each actor will also have to adjust their approach to younger clients and make sure the lessons learned are applied to the future. This is not about organizational CYA – though too many advisors and firms will worry about this angle and their “liability” for confronting the truth - this is about a genuinely human concern to improve the situation. It is less important to rehash how we got here, it is more important to show our genuine commitment to recovering the plan. 

Personal health care offers a good example of this “recovery” pathway. When you have a medical issue, the first step is to deal with the current symptoms - reduce pain, improve comfort. Focus on what to do now. Only then can we look more closely at the cause(s) of the problem. Required skills here are listening and empathy. Are we really good at those?

I’m pretty sure Retirement Recovery will soon become the #1 driver of referrals and new clients. Most of the new opportunities will flow from the wreckage of plans gone off the rails. You will confront more people who are surprised, concerned, mad at their prior advisors, mad at themselves - and embarrassed. Job 1 for us is to acknowledge and normalize their condition. They are not alone - they are actually reflective of the vast majority of retirement plan clients. 

Before you dismiss that last line, which will stand in our way if we don’t accept it, is to fully comprehend the full needs of “retirement” (https://www.fa-mag.com/news/where-are-the-retirees--yachts-66565.html)

Three conversations help organize the process of recovery – financial issues, investment decisions and family concerns (mostly about health and care). Back to those top advisors who remind us that retirement is a family affair and that one or more of the family members do not really understand the multiple moving parts. True financial literacy is rare enough – how the sometimes complex and arcane concepts apply to them is even more elusive. 

The core strategy of a recovery strategy is simple but not easy, as Buffett famously observed about investing. So channel common sense and consider:

1. Empathize to normalize – no matter the client situation, “you are not alone, everyone has issues”. Actually, multiple issues. So let’s first get a complete inventory of what you worry about. We may not be able to solve them all, but let’s get a total checkup of the car and not just fix the flat tire. A top advisor tip – start fixing the “tire” quickly, confidently and at a very reasonable price in order to set the stage for the bodywork and new transmission to follow.
2. Educate to remediate – are we confident in the investment choices and solutions – do you know the role of each solution you own and are their better options? A tip – make sure you know where each product came from and who was involved before making any judgments. We don’t need client defensiveness in the way of building trust. 
3. Is everyone on board? Do all family members understand the plan and the underlying choices that really determine success – such as the choice of where to live and the expectations for providing care when you need it? A tip – probe about those family dynamics – and keep probing. Fewer than half of clients with advisors told a national IWI survey their advisor does not include the spouse in planning, let alone aging parents or adult children. And we wonder why 70% of widows nuke the advisor? 
4. Keeping the lines of communication open and active as the next chapter unfolds – there will be changes needed and more decisions. That’s life. But this aspect of staying current is where the robos are killing advisors. Failure to keep up with specific, totally predictable life events is probably the most critical need of retiring families and the best entry point for earning referrals. An advisory firm I met with recently sets the stage for what they do by first asking any new prospect about the elections they’ve made for Social Security and Medicare – and what happens to their estate if they (a couple) were hit by a bus tomorrow. No investment or performance discussion, no tax returns – just showing their interest in the decisions that are must-make for us all that reveal their level of preparation. The robo does not forget a date, does not tire of sending reminders (though only by text or email), and will keep getting smarter as it learns more about the client. If Google News, Amazon and Nordstrom can suggest what I want to read or buy with the accuracy I’ve seen so far, the most feared new advisor in town is an avatar.

Only the Outcomes Matter

While many – most – retirement plans will at some point be shifted to a “recovery” effort, we can always share our learnings with other clients. The first opportunity of the “white flags” by clients willing to accept help is the mindfulness of those clients. Saving someone’s retirement plan is not about producing financial rabbits out of a hat – it is mostly about helping the clients accept their condition and making the best of it. As we guide our own children by saying, “You cannot control what happens to you – but you can control your response”, we have a similar moment with white flag retirement realists. And that word will spread rapidly. First to the heirs, and then on to the peers and colleagues. Get ready for the line around the block to your door.

by Steve Gresham

Adoption is the New Innovation

Every day, there are hundreds of news items extolling the virtues of new fintech. There is a dizzying array of tools flooding the advisor market. I am envious of those who can choose wisely among them.

And yet this software doesn’t quite capture the feel and efficiency of the advisor-client experience. Is that a problem with the software? Or with the users?

I don’t want to discourage innovation—bring it on! But I wonder if we have truly learned how to use the amazing apps and software we already have, or if we keep jumping on emerging fintech as if it were the new iPhone version X.X before we’ve figured out half the functionality of the old models.

The center of any technology should be the advisor-client relationship. That’s the utopian vision, anyway, one that should prompt simple and easy solutions. Software providers should be enabling your digital relationships, and thus improving your volume of activity, as well as the consistency of your results. When you can string your software together into a customer experience, you see the potential contribution from tech adoption—and wasteful gaps when the tech is not deployed.

When you’re starting to deploy your technology, start with a daily plan and see how it affects your overall results. Your CRM software should have all your client’s information loaded and your activities log should show that every day you have “calls to action.” The average book for every advisor is 125 families. Your CRM should include three to four nuclear family members but also aging parents and adult children for a total potential “household” of 30 to 40 accounts with several custodians. Without good software, that’s a lot of Post-it notes.

It's time to think of your expectations for the customer experience. How many of those households receive a solid annual review? A midyear review? How many times do you follow up on the actions you’ve taken? If the industry standard is two meetings a year, can you be sure all 125 families got theirs? That’s 250 appointments with just two meetings for three generations and 30 to 50 accounts. What if more meetings were needed? If the accounts are for retired people, would that not mean more complexity?

I remember visiting with one of the country’s top wirehouse advisors a few years after managed accounts became mainstream. One of the pillars of this advisor’s offering was a quarterly performance and holdings report and a quarterly review with the clients. People loved the transparency and accountability—and consistency.

Walking into the advisor’s office, I noticed a flurry of activity in the office next to his. “They’re stacking our quarterly reports,” he explained. “We had to get another office to hold them.”

The advisor’s practice became buried in meetings with clients. He made changes to balance the load—like setting annual reviews by the client’s birthday instead of trying to squeeze everyone into the calendar at the quarter’s end. He also merged some account reviews by inviting multiple family members. Both steps opened additional opportunities, but the initial motive was just to save time.

The discipline required for the regular client meetings was an eye-opener to him. “We had no idea of how little we were talking to clients—and how narrow the conversations were,” he observed.

This is Practice Management 101: Our client communication is lacking, and that means there’s opportunity if we improve it. The average wealth management client is about 67 and has accounts with four to five firms, but no one firm usually has more than half those assets. Until that reality is altered, advice providers are battling each other in a zero-sum game with really significant implications. “Share of wallet” is the new battleground.

As aging clients consolidate their assets, there will be winners and losers among financial services professionals. Morgan Stanley has said for five years that it’s actively seeking the nearly $3 trillion it doesn’t have from the clients already on its books. In pursuit of that goal, the firm booked $438 billion in net new assets in 2021.

This is a big game with a lot on the table. If you think you’ll achieve organic growth that miraculously springs from this aging investor population, forget it.

Keep in mind the reality. Most advisors don’t regularly reach out to clients with tailored information. They just don’t have the time. This applies to RIAs, wirehouse advisors, regional brokerage advisors, independents and direct providers. Ironically, it’s the AI-powered robos that have upped the game for proactive outreach, not the humans. Robots are pretty organized and work 24/7.

Tech tools can indeed help you, however—help you manage opportunity and remember all kinds of important business issues: the clients you haven’t seen for a while and the meetings you meant to set and birthdays and retirement dates and RMDs and bond maturities and graduations and all the stuff clients told you in meetings that they hoped you’d remember.

Tech helps you manage opportunity by managing volume. Most advisors have all the clients they need—especially when you consider each client’s extended family, friends and business associates—but they are not organized well enough to get there.

Remember Warren Buffett’s line: “Investing is simple but not easy.” The same goes for advisors in the business of details—the excruciating details they must remember, like accurate beneficiaries and powers of attorney and cost bases and the names of the children (and pets!) Everybody knows this, you might say. But the industrywide data tell the story—they don’t do it. Otherwise why would the average client have four to five different firms? Are they really meeting a couple times a year with each?

His colleagues were soon consolidating assets, and their work set the stage for the evolution of the business into Merrill Lynch Private Wealth, a new step in client service.

As it was starting up, data again revealed reality. A very simple exercise we did with the top advisors globally showed that there was potential to serve even the best clients even more.

The advisors reviewed their top 20 households against a list of the seven most common financial products (such as managed accounts, for instance) and eight of the most common financial strategies (asset allocation, estate planning, etc.). The gaps found among just the top 20 households were alarming (or exciting, if you like opportunity). Each of those gaps opened a door of access for a competitor—and that became the basis of the wealth management game plan of driving consolidation and referrals (by closing that door to competitors).

Simple, right? It should be. All the best strategies are simple, and understandable to clients. But they require organization and attention to detail, and you cannot achieve that level of efficiency with Excel spreadsheets and Post-it notes. And that is where a lot of the advisory world remains, trapping frustrated clients with them.

Consider that in 1997, the time when Merrill Lynch took that step, there were just a few client households to reach, and the client population was not nearly so close to retirement. The oldest baby boomer was only 51.

Now there are some 10,000 people turning 65 every day. The Great Retirement and Great Resignation together suggest the number leaving the workforce exceeds 12,000.

The good news is that if your marketing and relationship skills haven’t atrophied after 156 months of bull markets, you’ve got a historic chance to win new clients and assets from less ambitious advisors—potentially doubling your business, or more. The flip side of course, is that you are surrounded by competitors who might do the same to you.

Let me know how it’s going—call me on my Razr flip phone or email my BlackBerry.

by Steve Gresham

Let Them Eat Calamari!

When my son was about 2, we lived in a New York City apartment near an awesome Italian family restaurant. He loved calamari over linguine. One day another much older patron asked him how he liked his “squid.” “It’s calamari,” replied the confident tot. “Yeah, calamari is squid,” pressed the other diner. “Well,” my son explained (dismissively), “I like it anyway.”

A historic generation of 76 million people with a median age of 66 are rolling out of the workforce at 12,000 per day (a number that’s climbing). They need to replace paychecks from work and secure their healthcare. And survive their longevity. Sounds like a job for an annuity with a cost-of-living adjustment and a long-term care rider.

You mean a squid?

When I first earned my Series 7 license, I was a stock analyst. But at that ancient time, the Dow was 800 (just two zeroes) and investors were gun-shy, preferring to invest in 9% munis and 15% T-bills (when inflation was 13%). And why not? As you know, their preferences changed, but not overnight. Both bonds and stocks began an epic climb together, and an entire generation feasted on the returns from funds and managed accounts—initially opposed by a legion of stockbrokers who scoffed at the transparency and “risk-adjusted returns.”

Not so fast-forward to today, when commissions are free and managed assets are $40 trillion.

Those same clients are now facing the expenses of retirement. So when the Dow fell 10% and the Nasdaq tumbled 22%, retirees who remember losing half their account values from 2007 to 2009 (not to mention the first tech wreck 20 years ago) became justifiably concerned. 

In a recent Financial Advisor flash poll of advisors, Evan Simonoff asked what advisors would do if clients said they wanted less risk. Eighty-five percent opted to “change asset allocation” instead of turning to income strategies and annuities. Another way to look at it is that they are defending capital market theory as an intellectual response to an emotional condition. But it’s getting well-intended advisors in trouble with clients who think they are being ignored—or dismissed.

“Retirement planning is like building a family dinner with multiple, complementary ingredients,” says a well-respected head of annuity and insurance solutions for a national advisory firm. Having just one dish—even with underlying components like a managed portfolio—should not be expected to satisfy everyone. The menu makes sense of it all.

That’s a terrific perspective for both advisors and clients. There is complexity—inherent complexity—in building solutions to fund a 30-year retirement. The portfolio can be the entrée, but what about the side dishes, the salad, the appetizers, the dessert, the wine? To some people, the wine is the highlight. But too much might ruin the meal (and the next day). And anyone with a big family can tell you that it is important to recognize that every member has different preferences.

Watching advisors and their clients wrestle with the myriad needs of retirement, we see their frustration at the lack of certainty. And we see their anxiety. Most of the success factors, like longevity, are unknown. But we cannot and should not allow the unknown to stoke unease. There are other things important to clients: such as peace of mind, comfort and confidence. And these are things they are willing to pay for.

As several smart behavioral experts have said, human brains do not naturally process abstract, long-term planning. But we all love short-term comfort, and advisors need to offer some of it. Sometimes it is OK to add some mac and cheese or dessert to the healthy table. It doesn’t mean you’re promoting chocolate cake instead of a stuffed turkey.

There’s been enough research showing the value of certain annuity products in retirement. But this article is not about solving that problem in a left-brained way. I’m talking about connecting with clients in a very human way.

Annuities face criticism, but some of that is based on folklore from long ago. Anyone lamenting the products’ “high cost” should apply the same test to most alternative investments. Or to “no load” mutual funds, with their 4% back-end cost or their forebears, whose cost was 8.5% up front. Demand drives innovation that results in better solutions. That innovation has been taking place in the income product world for years—and there’s more room to run. Check it out.

It is simply ridiculous to turn a blind eye to an entire category of potential investment solutions that can give value—peace of mind—to a generation of investors who have earned our respect by supporting us for decades. Especially if there are solutions that can leverage limited assets—something that’s true for most clients. Such strategies will appeal to both their brains and their emotions and finally acknowledge that their peace of mind is a valued objective. If we insist instead on promoting what we think is “good for you” over what people say they want, without regard for alternatives, we will drive away our core clientele when a disruptor offers what they want—and it works. Consider the impact of target-date funds as the retirement plan default in lieu of guaranteed interest accounts.

We are watching a new role emerge in the retirement advice marketplace. Let’s call them “Next Chapter advisors” instead, people who specialize in helping individuals and their families fund that next stage of life. They are often in the same phases of life with their retiring clients, so they can use their own expertise with accumulation and investing. But now they can focus—on now. That’s a different mindset that requires an empathy clients will embrace. These advisors will use planning and products for multiple objectives and help families prepare for those inevitable things that happen in life.

So get everyone to the family retirement table and pass the calamari. Who cares if it’s really squid?

Steve Gresham is on a mission to improve “retirement.” He is CEO of the consulting firm the Execution Project LLC and leads Next Chapter, an active think tank of 50-plus leading financial companies. He is also the senior educational advisor to the Alliance for Lifetime Income. Steve was previously head of Fidelity’s Private Client Group and retail strategy.

by Steve Gresham

Chasing the Other 80%

In the Blogosphere, April 11, 2022

Every day it seems like dozens of news items extol the virtues of new fintech – product announcements, funding efforts, PE acquisitions. A dizzying array of tools floods the advisor market. I am envious of those who can choose wisely among them. The @Kitces chart of company logos – brilliant. I wonder how many of these companies will survive. Does the world really need 26 portfolio management systems?

I don’t want to discourage innovation—bring it on! But do we truly learn how to use the amazing apps and software we already have, or do we jump on emerging fintech as if it were the new iPhone version X.X before we’ve figured out half the functionality of the old models? Do we have a product innovation challenge – or an adoption challenge? My guess is that adoption is the new innovation.

Chasing the Other 80%

Simple questions of even the best advisors reveal opportunities. Ask advisors if they deliver a list of ten wealth management services to their clients and the answer is invariably “yes”. But then ask how many of the (average) 100 households have actually received all ten services from their practice and the response is different. Serious truncation takes place after households #10-20 to prove Pareto alive and well.

The practical reality is that today’s advisors can do very well with that 20% of engaged clients. A robust bull market tide since March 2009 has lifted most all the advisory boats while reducing incentives for “completeness”. The industry is not so much focused on making sure everyone is cared for – the focus is more on satisfying the financial objectives of the industry. This delivery gap is a wide open door for serious competition – a door being accessed now by ambitious scale players eyeing the prize.

Invention vs. Innovation

My view of “innovation” has been formed by years of watching the energy of brilliant minds pursue a new capability without first testing for effectiveness – or impact. Seemingly small steps applied at large scale can easily outweigh unique inventions. Consider the time savings and customer satisfaction of improved money movement – remote check deposit, the ability to send wires – vs. the more limited but more exciting investment product builds.

Simplicity, ease and control are powerful design elements the advice industry has room to exploit. As long as CRM use remains below 50% of active advisors and fax machines support any part of FinServ, we have work to do.

Path Forward: Divide and Conquer

The advice industry is maturing into a more organized product and delivery phase. We know that many consumers need help with retirement advice, they want information about healthcare solutions, protected income and liquidity. We know that too few advisors provide that array of essential services – and that the industry does not strive to get those services to all of the clients.

Some firms are stepping into the “80%” gap by providing advisors with ideas for “next best actions”. Others are beginning to mimic the direct marketing behemoths Fidelity, Vanguard by making offers to clients and encouraging them to then engage an advisor for follow up. Still other efforts will allow clients to take action without need of an advisor. This segmentation is the future.

Our economy long ago eclipsed the need to depend on humans for delivery and effectiveness of most services and products. Even personal health care today has filled in huge gaps with transparent reporting, electronic records and partnerships with local for-profit chains like CVS. Amazon removed the need to depend on the local store. Gaps in delivery will be filled by innovators not focused on inventing some super silver bullet but instead focused on how to get us what we think we want when someone else cannot.

Disruption Is Invited

Several brilliant innovators have declared their best works were not even imagined by the consumers that love them. True enough. But some of the greatest commercial successes have been created by providing access – simpler and easier – to capabilities or products consumers asked for and could not get. And while it is fashionable to have a new invention, it is more powerful to be effective.

Focus on Effectiveness and Client Success

The much hyped “customer experience” needs an upgrade to “customer success”. Firms and advisors already on this bandwagon are the leaders. The myriad challenges of retirement planning require real answers, not best efforts. This standard of success is growing fast and will soon reward providers who can meet expectations.

A second and equally important aspect to “success” is the shifting of roles among providers. An advisor focused on investments that tries to add healthcare and longevity planning is taking on a significant effort. Creating successful retirements will mean transitioning to a new definition of success – a retirement manager or “next chapter” facilitator. Just like the industry move made years ago in favor of professionally managed accounts, the true consultants emerged and flourished. The true “stockbrokers” withered from the competition.

There is new opportunity for advisors and service providers to each take on components of “client success” and work together in complementary service models. Delivery needs to focus more on completeness and less on satisfying the requirements of a select few clients. Digital capabilities leverage the effectiveness of humans, and can also help reach people who need help. As we learned with COVID 19, there is both a need for effective treatments but also the access to those treatments. Innovation looms large in both perspectives.

Steve Gresham is on a mission to improve “retirement.” He is CEO of consulting firm the Execution Project LLC and leads Next Chapter, an active think tank of 50-plus leading financial companies. He is also the senior educational advisor to the Alliance for Lifetime Income. Join Steve at Next Chapter 2022: Rockin’ Retirement on May 24-25!

by Steve Gresham

The “Oh Sh*t” Moments of Retirement Planning

My work with consumers, clients and advisors over many years has revealed to me three groups of retirees - 1) those that are “all set”, 2) those that are screwed, 3) those that are screwed but don’t know they are screwed. I’m equally sure the size of those three groups runs from very small to very large. So that’s become my mission - to help reverse the trend of unpreparedness. And the lead edge of that mission is Next Chapter.

The human brain is not naturally wired to long-term planning. That’s scientific fact. Most people suffer from what Nobel laureate Daniel Kahneman calls “narrow framing”, which is the tendency to minimize the size and scope of situations and therefore fail to see their full implications. We see the tree. We miss the forest. 

But even when we plan, retirement planning relies on predictions, many of which are spitball guesses for most people. Have enough money for retirement? How do you know unless you either have a fortune (most people don’t) or you have an accurate read on your full assets and benefits (after taxes, please), the future prices of those assets, the rate of inflation, your health in retirement - and the expected date of your death. Wait, we also need to know if you will be responsible for anyone else in that retirement. And for how long. And how much it will cost. 

Because most people won’t guess accurately when answering these questions, we need to adjust the view of our roles and consider ourselves “retirement recovery specialists”. The first step is tot end the stigma of being unprepared and just assume everyone is. Even the multi millionaires may get trapped in a lifestyle they can’t afford or face life changing healthcare crises. Just as likely for the wealthy is the need to find meaning, a new chapter, or risk boredom and loneliness. Retirement is not just financial, it is emotional. 

If we are going to be good at this retirement recovery role, we need to be prepared like ninjas for the common planning potholes. 

Advisors very often are confronted with “moments that matter.” By these, I mean critical situations clients or their families are in when they need critical help. The common thread, expressed by advisor and Next Chapter Advisory Council member, Tom West, is that these moments reflect situations “in transition” - the train is already leaving the station. Families are reacting and contacting advisors. So advisors are too often trying to catch up before having the chance to address the problem. 

An Unexpected Family Health Event 

I remember vividly the story of Sue, whose husband missed only one day in 33 years at John Deere. Roy collapsed at a pro-am golf tournament and was diagnosed with a brain tumor. He had never worked closely with a financial advisor and now Sue needed help. Their advisor, Alicia, met with Sue and five of her friends who all had similar situations. Alicia acquired them all as clients. But the starting point was the establishment of trusted contact information, POAs and medical proxies. None of the five families had those basic documents in place. 

Client is Having Trouble Making Financial Decisions

An advisor named Christian had a longtime client who always drove herself to his office. But one day she admitted to him she could not remember where she had parked. And it was not the first time. Christian assured her she was safe, and he contacted her son who lived nearby. Additional measures Christian recommended included a fraud monitoring service; an updated power of attorney; and the update of other documents, including the living will. Christian now works closely with both sons. 

Recently Widowed Client with Adult Children

Jackie’s husband Bill was an engineer and also a very confident investor. He built computers and did the taxes. He brushed off efforts by his “direct” financial services firm to discuss managed accounts and income products. His assigned advisor wrote off Bill as a poor prospect for planning. But after Bill died, Jackie engaged fully with the advisor at the suggestion of her oldest daughter. Seeking to save her children the stress of watching over her finances, Jackie opted for both a professionally managed account and protected income solutions - a complete turnabout from Bill’s approach. 

“Gray” Divorce Creating Financial Insecurity

Divorce rates are rising again across the board (thank you, Covid-19) but older people are divorcing at higher rates. Whether it’s gray divorce or splits among younger people, it can put a severe strain on anybody’s retirement savings, and when you or your team members are asked to help in these situations, you must be ready to demonstrate empathy and perform solid analysis. It doesn’t matter how wealthy the families are. Divorce at any level of wealth invokes intense emotions and intergenerational conflicts. 

Retirees Worried About Paying for Healthcare 

Health is the No. 1 priority of clients across all adult age groups—health, wellness and the financing of healthcare. They have to ask themselves if their documents are in order and who will be the medical proxies making their decisions. How will they arrange financing for their health—with Medicare or long-term care? How will they be able to customize cost estimates using local rates, their family health history and longevity projections? Advisors often turn to national surveys to answer those questions, even though these things often require local answers. We can do better.

Older Adults Who Want to Age in Place

My mother is an 88-year-old widow with limited mobility but a sharp brain. She resists assisted living because she believes she’ll lose independence. She’s managing fine but knows her situation could change. We all hope that she can age in place with in-home care. But as the pandemic showed, we can’t assume that caregivers will always be available. In fact, qualified, reliable and trustworthy caregivers will likely be scarcer than top financial advisors. 

All of these vignettes illustrate the value of proactive discussions, early on, with older adults and their families about aging “transitions”. The talks should come well in advance of the proximate need. Says Tom West, “These life moments are like dominoes - if one falls, the others tend to follow”. Of course, this work is no game - and there may be no more valuable “moments” for financial advisors to prove their value. 

As a start, you can tell clients these stories and query of each what their preferences and game plan will be. Let the games begin. 

by Steve Gresham

Where Are The Retirees’ Yachts?

Retirement is here. It’s all around us. The median age of our clients is almost 70. Stories about clients’ lack of financial literacy and preparedness are everywhere. The top advisors might reply, “My clients are all set.” But what about the other 97% of people not lucky enough or wealthy enough to earn that level of attention from skilled professionals? Most Americans are on their own.

Is it a problem that the financial industry is generally unprepared for the delivery of retirement advice? Or are we content with our “best efforts”? Is it enough to tell people to save more or to tell the adult children of our clients to go pound sand? There are people doing deep thinking about retirement challenges, but most clients will never meet one of those thought leaders and will not qualify for the attention of a great advisor.

No one thinks this retirement planning stuff is easy. In fact, it’s dauntingly complex. There’s an increasing demand for personal service. The numbers of people looking for (and requiring) assistance are rising. Most haven’t prepared for the lifestyle they want and will have to make adjustments in real time. 

“Retirement” is more than just a life stage or a financial condition. It’s a complex personal and emotional transition for the retiree that continues until they die. It also requires their family members to get involved in various ways, even though they, too, are new to the experience (and mostly new to the advisor now intimately involved with family matters). 

The top advisors will lead the way in this challenge, negotiating the new path forward. They’ll likely be offering not one but a complex array of solutions aimed at moving targets: the client’s needs. The needs of extended family. Truly the work is “craft,” as these top advisors will show us. But craft isn’t something easily scaled to match the greater demand for the advisors that follow. 

No matter how mindful a client’s initial retirement plans might be, there will be surprises and failures. The most important questions for planning cannot be answered with certainty. We don’t know exactly when we will die, if we will suffer from dementia or need special care, and we really don’t know what markets will do or where rates will be or what inflation may do to healthcare and living costs. Without solid answers to those questions, we cannot provide comfort to a couple retiring with $500,000 and Social Security. If they have family health and care issues or brilliant longevity, even $1 million might not cut it. And that will be a surprise to most hard working Americans—the vast majority of whom have not saved anything like those sums. And for sure don’t expect any sympathy from government leaders toward someone with half a million in a 401(k), even if that person is still vulnerable.

Given these unanswered questions, it’s likely we’ll need to retool a lot of people’s retirement plans, perhaps many people’s, coming to the inevitable rescue of folks who didn’t get it right the first time or suffered from a healthcare issue or some other financial calamity, anything that might have ruined what were otherwise the best of intentions. 

Three Talks

Good planning involves three talks—one about finances, one about investments and one about family. Each of these talks will overlap the others in a Venn diagram, one that’s forged by forces largely outside our control.

The financial conversation. This addresses the nuts and bolts of how much we need and how much we have—the income and expense realities associated with retirement. It will unfortunately involve imperfect projected data inputs flowing from predictions. How much will you spend? How much will you need? Those questions depend largely on when you will die. When is that exactly? Our health is another big wild card.

We seldom calculate with any accuracy how much we have to spend in retirement. We can make hopeful projections about the behavior of capital markets, but do we know what interest rates, inflation or the price of Apple will be in 20 years? What will taxes be? What is the value of Social Security payments over our lifetime? Will cost-of-living adjustments continue? Laurence Kotlikoff, a professor at Boston University and a longtime critic of the retirement planning industry, observes in his excellent new book, Money Magic, the difficulty (futility?) of the financial conversation when retiring baby boomers prefer to keep spending what they want regardless of their available income. Compare corporations, which depend on budgets and then spend accordingly. This simple script flip is a hard calculation and brings many rosy retirement scenarios to a screeching halt. 

The financial conversation is the “what” of retirement planning, and it reveals the serious shortfalls in the industry that require attention right now:

• How to manage for the entire family—in a “unified managed household”;
• Tax planning integrated with investments;
• More precise healthcare estimates based on our clients’ actual health;
• Longevity estimates using that personal health data and family history; and
• Liquidity preparedness for big expenses and to minimize disruption.

Perhaps the best overall summary for the plight of today’s retiree is a white paper called “The Peak 65 Generation: Creating a New Retirement Security Framework.” It was written by Jason Fichtner, the head of the Retirement Income Institute at the Alliance for Lifetime Income.  

“When people in the Peak 65 generation entered the labor market in 1980,” Fichtner writes, “60% of private sector workers relied on the protected income [from] a pension plan as their only retirement account, as compared to 4% in 2020,” and that “49% of Americans are ‘at risk’ of not having enough to maintain their standard of living in retirement.” And that includes 29% of “high income” households. 

The investment conversation. Here the topics represent the planning “how”—how the projected income and expenses will be funded. Like the financial conversation, this one involves considerable forecasting—most notably prognostications about the future performance of markets, interest rates and inflation. Besides investment advisory skill, advisors here can add alpha by talking about the impact of taxes and exchanging assets (for example, selling stocks to fund protected income or selling a home and investing the proceeds) and talk about the sequencing of asset sales (asset location). 

We have to talk about taxes, which are for your clients likely the result of investment success. The vexing issue now, for clients and advisors alike, is how to withdraw proceeds from myriad IRAs, rollovers and DC plans. This, after all, is the first native defined contribution generation. How many of them will get that tax help? And from whom? TurboTax?

You’ll need to talk expenses, too. How many clients can outright fund their own healthcare, or long-term care, not to mention a new roof, tuition for a child or grandchild, elder care costs for their aging parents, a wedding? The retirement service industry has come up with liquidity solutions, including generous credit lines against managed portfolios. That access will give some clients peace of mind and feelings of control. But the advisor has to be looking at the total balance sheet. How many do?

There are also benefits such as long-term-care policies tied to life insurance. I have one of those. A trust company CEO told me at lunch recently that his firm encourages local clients to secure a spot in a continuous care retirement facility with assisted living, a nursing pavilion and hospice care. That decision rescued my father when he was told he had pancreatic cancer. Some forms of protected income products leverage client cash better than bonds and add longevity protection. How about the ubiquitous qualified longevity annuity contract with a deferred income annuity (a QLAC with a DIA)? Or how about good old life insurance to leave cash to family members? 

What about liberating home equity, one of the biggest assets in the typical household? The largest asset class in the U.S. is residential real estate. That’s about $40 trillion of value waiting to be unlocked, and some of it could make all the difference to one retiree’s balance sheet. 

It's worth asking: How many advisors use these tools and how many clients get the benefits? (It’s also worth mentioning that things like tapping home equity have to be safe, economical and carefully supervised.) If you don’t use all these tools, they’ll likely be used by the 20% of top performing advisors out there (who always inevitably emerge, according to the famous Pareto principle).

The clients themselves may also have opinions about certain strategies and investments, depending on their appetite for risk. But the clients are likely to be both visual and emotional (while their advisors are more likely to be analytical, abstract thinkers). So, for example, when advisors ask clients to “stay the course” during a stock market correction, they’re responding with analytical answers to an emotional reaction (fear). That’s bad bedside manners for the retirement doctor.

The family conversation. If the financial conversation is the “what” of retirement planning and the investment talk is about the “how,” then the family conversation is the “why.” It’s also the “who.” 

The retirement journey is really a family affair. The most common retiree family today is a couple with at least one aging parent and adult children and they’re facing demands from both cohorts (a situation that has earned them the name “Sandwich Generation.”) 

That means families are affected by the retirement too, and family dynamics become the ultimate wild card. Will aging parents require financial support and time for caregiving? Will an adult child or sibling ask for help? Can retirees handle (or would they say no to) a child’s tuition for a master’s degree, help with a wedding (or a divorce) or a parent’s request for eldercare? Seventy-nine percent of parents are the “bank” for their adult children ages 18 to 34, and the typical support is two times the amount saved annually by those parents for their own retirement. 

One trust company CEO I know puts it this way: “It used to be difficult to get our clients to include their adult children in financial discussions, including legacy planning. Covid is clearly one of the influences of change, and now about 60% of our clients are involving those family members.”

There are things we need to do better when it comes to family.

We first need a commitment to effectively engage in the family conversation. Too many spouses are uninvolved in the discussion, too many adult children ignored or not offered a service model more suitable for their digital lives (even though it’s super low maintenance for the advisor). 

Yet this is where most advisors bow out. “Human” topics aren’t in their comfort zone. They prefer the mathematics of portfolio analysis. They like the efficiency and simplicity of dealing with the “primary head of household.” 

Blow that image out of your mind. Today’s family is three generations—or more—and have a boatload of unresolved dynamics about healthcare and other key life decisions. A couple heading toward retirement is entering new territory for their relationship, and they’ll have to make decisions about their transition—living, healthcare costs, driving and transportation. Who else will help them navigate the changes? Their accountants? 

Reality Checks

Ric Edelman says millions of new retirees in pursuit of “quality of life” face serious reality checks ahead. “Whether or not they have an economic need to work, they will have a desire to contribute to American society, keeping busy to remain stimulated, be a member of the community,” he says, as they discover “watching TV and eating bonbons all day is no way to spend the last 40 years of your life.”

The point of all this discussion is not to debate—again—the advantages or flaws of specific elements of retirement planning. Most of the industry enjoys those abstract, analytical jousts. The point—or the question—is to determine our “why.” Are we solving for the needs of our top clients, for our total book of clients? For all the participants of a retirement plan? Do we have a responsibility to improve the results for all consumers? If so, how and when? If not, why not? And—ultimately—if not us, then who?Steve Gresham is CEO and founder of the Execution Project LLC and managing partner of Next Chapter. He was formerly head of the Private Client Group at Fidelity Investments. He also serves as senior educational advisor to the Alliance for Lifetime Income and is the author of The New Advisor for Life.

by Steve Gresham