Insights

How the Best Advisors are Getting Better

Meet the Top Advisors Built by Their Clients — New research confirms three new winning growth strategies

The best advisors are getting better – by following the changing needs of their best clients. The top 100 wealth management teams ranked by Barron’s increased client assets by an average 10% over 2021 – a strong performance in a challenging environment. But much more impressive is the average revenue gain of 48%.

How?

New industry data shows that clients want help with complex issues of retirement planning and the implications of longevity. Advisors listening carefully to their clients are adapting – winning new assets and new clients.

Here are the three big growth ideas – with the underlying “why”, the tactical action steps and the research solidifying the trend:

1. Adapting to New Client Priorities

What the Clients Said:

• Advisors are from Mars – mostly still managing portfolios and touting investment solutions, and clients are from Venus – increasingly concerned about the risks in retirement of inflation, health and healthcare.
• Retirement is a family affair. Too often, spouses, parents and adult children have not been involved in planning – and have different priorities and concerns.

What the Advisors Did:

• Engaged the family. The top advisor teams know the family members, especially aging parents with immediate needs as well as adult children who are nextgen clients.
• Lead with planning. Planning is first organizing a jumble of accounts and products, and then provides the foundation for more specific solutions needed in retirement.
• Adopt protection strategies in addition to investing. Good planning is also good preparation for expected and unexpected events. Advisors are asking the tough questions about health and family history and a lot of “what if…”

Why It’s Working:

Most of the industry claims to be client focused, but too many clients say they don’t see it – or feel it. A terrific new study by Morningstar¹ reveals a complex array of reasons why clients leave their advisors, and the central thread is poor communication. Nowhere in the business is that communication more off target than in retirement planning.

Piling on to the disconnect between investing services and planning advice is the newest J.D. Power annual investor study², now in its 21st year, that reports investor satisfaction with full service advisors continues to slide - to 727 out of 1,000. Power says the culprit is the “systemic problem” in wealth management of focusing on investments while clients want more comprehensive advice. The study shows 42% of advisors deliver transactional advice, 47% deliver goals-based advice and only 11% provide comprehensive advice. The leaders stand out because the competition isn’t delivering what clients are asking for.

2 Solving for the Trimesters of Retirement

What the Clients Said:

• “Retirement” is not an event, it’s a journey with new developments and challenges. And every retiring client is a brand new traveler.
• The stage is a long-awaited vacation -- clients enjoy the best health and the most money they will have in retirement.
• That vacation can change quickly to a “staycation” if a spouse or family member becomes incapacitated, but many clients haven’t planned for this “slo-go” phase.
• The third trimester is the “no-go” period when the client may be alone. Clients pondering retirement have typically not considered all three phases.

What The Advisors Did:

• Longevity is inevitable but also manageable – if you prepare. Most clients know but have chosen to avoid the blunt truth of potential incapacity or disability. And most know older parents, relatives and friends who have grappled with the often sudden issues of health. New to them, but not to top advisors.
• Mastered the moments that matter. The seven most critical life events are often calls to the practice from clients who don’t know what to do. Top advisors make sure they have a prepared response because the moments are brand new to most clients. And no amount of money can insulate a family from failing health or cognitive ability.

Why It’s Working:

• Retirees shift the priority of their concerns as they age. Money worries give way to health and healthcare worries as the physical impact of longevity grows.
• In the Longevity and the New Journey of Retirement Survey by Age Wave for Edward Jones³ , author Ken Dychtwald contrasts longevity – lifespan – with “healthspan”. Life expectancy for Americans overall is 78.5 years, but most people will suffer with multiple chronic ailments for the final 12 years. 2/3 of people 65+ suffer from at least two chronic conditions. Physical health and cognitive health are critical determinants of the ability of older retirees to live safely and securely. The “slo-go” phase. The same study reveals that at age 85, nearly three quarters of women are widows, and 36% of men are widowers. The “no-go” or “solo” retirement stage.
• Advisors don’t like to talk about longevity and health. Preliminary findings from a new survey of clients and financial professionals from the Alliance for Lifetime Income⁴ reveals that 75% of financial advisors do not discuss the risks of cognitive decline with their retirement planning clients. It’s not an easy topic, but it’s reality and clients expect advisors to anticipate potholes in the road ahead.

3. Managing Retirement Solutions is a Different Business

What the Advisors Realized:

• The complexity and customization of retirement solutions cannot be delivered at the same scale as selling investments. A solitary advisor, no matter how loyal the clients, cannot fly solo with a retiring family.

What the Advisors Did:

• They built a team of professionals. An advisor who is great at investing may not have the empathy needed to talk about cognitive health. A planning pro may not have the time to learn the fine points of protected income products. A lot of help is available. And they can more easily recruit younger advisors to an existing, successful team to improve breadth of solutions.
• They plan for succession. Advisors are aging right along with their clients and the best want to ensure continuity for clients and a graceful exit for themselves. The team approach tops the list of solutions for many top advisors committed to their clients and their colleagues.
• They get paid for what they do. Retirement is not an added-value service to investment solutions. Top advisor don’t typically charge only through investments. Many charge for plans, for their time and for complex solutions. Full transparency. And most expect to see all their clients’ assets and retirement plans and other existing investments.

Why It’s Working:

• Better scale means better success. Millions of clients with trillions of dollars have accounts with full service financial advisors trying to keep track of an average 150 clients – alone. That math just doesn’t work for delivering real retirement planning and solutions. Top advisors promote the value of their teams and frequently include different team members to assist a family.
• Planning, protection and solutions is a cleaner value proposition of “advice”. Too many clients have no idea what’s involved in retirement planning and even fewer seem to know what financial advisors really do. Top advisors don’t shy away from the complexity, and make sure clients have a healthy appreciation for the work. A leading advisory firm says advisors engaging protection strategies drive 4X the new client assets as other advisors and have double the revenue growth.
• Family rewards. There is a virtuous loop working with multiple generations. For a boomer-aged client, the assistance with aging parents may be a top priority today, but it provides an opportunity to reinforce the advisor’s value for creating a similar strategy for the client. And previously unengaged spouses and adult children participate in the process, creating a relationship with the advisory team that secures their assets for the future.

by Steve Gresham

Are Wealth Management Advisors Really Growing?

Faking growth ... Wealth management advisors aren’t really growing. But there is a way forward.

RIP, organic growth.

Most of today’s wealth management offerings are built for a business that no longer exists and for clients that are moving on (not moving in). Why is that so?

Let’s look at wealth management following that train of thought (and anticipating the ultimate derailment):

1. For one thing, the products are free. Investment beta and trading commissions are now free at leading direct providers. So if you aren’t free, what is the value you’re offering for what you charge? If you say, “It’s for advice,” then what’s your advice about?

2. That’s important to ask, because a lot of clients say they don’t want advice, or at least they don’t want to pay for it. During a consumer panel at a recent national industry event, I heard three consumers on the panel say they don’t have an advisor. They said things like “You can do everything at Fidelity,” or “Advisors always sound like they are selling me something.” Forty-six percent of retirement plan participants in a survey said they don’t have financial advisors and aren’t looking for one.

3. Now let’s look at the clients we do have. Most of them are unengaged, and that’s because they have multiple financial services providers, and distant relationships with them at that. Look at the national stats. If you blend all the coverage models, from the small RIAs to the private banks up to the largest direct providers, you get an average ratio of 150 households per advisor. Most “clients” (outside small, intimate firms) are really just fractional clients. You’ll see them as whole clients only until they leave you when they’ve started consolidating accounts.

4. “Retirement” will eventually replace “accumulation” as the reason people are turning to you for advice, and that will determine whether your advice is profitable. Twelve thousand Americans are retiring every day. They have very different needs and require much more attention and complex solutions than they did when they were just saving. This cohort is providing more than 75% of advice industry profits through 2030.

So if we have all these things throwing us off, how do we get this growth train back on the tracks? And what is your definition of “growth”?

If your objective is to sell your organization, you can achieve impressive growth by acquisition, ride rising markets and buy more scale on the dips. Yours is a market share play with a revenue bogey and it’s more of a trade than a business. And when it works, it works—if you can sell at the right time.

But for the rest of the industry, especially those companies responsible to shareholders (as well as clients and employees), the solution is organic growth. And organic growth is measured by net new assets and client share of wallet. It’s also not measured by how well the top 10% are doing, but what the median advisor is doing and what his or her median relationship is. If you are consistent, that will make you a winner in enterprise value.

An executive in our NextChapter community says it very well: “Net new assets indicate the health of the business, and household share of wallet indicates the value the clients place on their relationship with their advisor and the firm.”

Accept The Consumer And Act Your Scale

Wealth management firms seeking a recipe for success will achieve organic growth by providing the clients with what they want now and what they want in the near future. If you are one of the advisors following the 75% of assets under management riding off into retirement, here’s what you need to know about clients and what they want:

• They have declared that “planning” and “relationships” are their evaluation standards.
• They are afraid of inflation, they’re worried about being able to fund healthcare and they don’t want to exhaust their assets
• They need a certain amount of liquidity to achieve not just their large expenses in retirement but their peace of mind.

There is no way to solve for these issues if you’ve got 150 clients per advisor (if you plan on using only human beings in those advisory roles). You would need to employ a lot of humans.

The path forward is to first design for your scale—and be clear-eyed about what you are and what you are not. And then you must make sure you declare your value proposition to your associates and clients. The days of being a “financial advisor” are over. It is time to be crystal clear about what you do since most clients seem not to know what we do or why they need us.

Every advisor and practice is different, so there is less value in providing “the answer” than in asking the right questions to help determine your appropriate scale:

• What do you really do? Maybe you can manage a book of 150 clients with investments, but you can’t do it with retirement planning. Our research of top planning advisors reveals a coverage ratio closer to 25 households to every one professional. And virtually all successful retirement planning practices are teams with multiple professionals with different specialties.
• Who are our clients? The more variety in your clientele, the less efficient you are. And what percentage of a client’s assets under administration do you need for what you do well? Scale favors bits of clients and single decision-makers per household. Planning benefits from having the entire family involved.
• What are we solving for? Our assets under administration may have driven profits but the aging clients now want you to shift from investing to protecting these assets. Have you? Liquidity, credit, liability management, long-term care, premature death protection, longevity protection—these are the new benchmarks, not the S&P.

The Inertia Of Success Is The Enemy Of Growth

Now is a good time to remember the old saw: “The primary obstacle to future success is your current success.” The U.S. stock market has rocketed to 37 times its value during the reign of the baby boomer, starting in 1982. The unprecedented lift from markets will not carry the industry forward from here. It’s time to reinvest some of those gains into a market offering incredible opportunities—and we’re overdue for change to meet the new demands of our current clients, who are now expecting more.

The opportunity is even bigger for first movers, because the inertia of success will trap many current industry leaders. We’ve seen this movie before—in the movie business, as it happens: when consumers left theaters, first for Blockbuster, then for Netflix. Wealth management might be a similar victim, but only if we try to hold on to a business fundamentally changed by the consumer and if we invite the innovations and competition that will defeat us.

Of course wealth management is not dead. But it is being dramatically transformed by the consumers who need it to be different from the way it works today. And not every provider is assured a spot in that new, multifaceted consumer world.

It's a choice.

by Steve Gresham

Sue and Ben

Sue and Ben could be the ideal clients. They do their homework. They plan. They actually like to plan. They have investments, life insurance. They work well with financial professionals. Their $2 million in savings seems like a home run now that they are on the “starting line” of retirement at 66 and 67.  But….

What About Dad?

Sue and Ben also have a lot of questions - really concerns - based on recent developments with Ben’s father, who is suffering from the early stages of dementia. Ben’s dad is a force - the patriarch - and his disability has shaken the entire family. 

A great advisor I know - Patrick - says often to his clients that planning is a two part process. The first part is planning with all available information according to the standard path of the planning software. Typically exhausting for the clients but they get a victorious high five from Pat who is genuinely proud of them for the commitment. 

Planning for Potholes

The second part requires his tee-up.   “That was terrific and congratulations for completing the process”, he leads, “Now we are going to stress test your retirement house”. Uh-oh. 

Sue and Ben are becoming aware of that “uh-oh” perspective. Their plan has focused on THEIR needs and they have not considered the impact of demands from the care of their aging parents. “It hit us like a truck”, says Sue, “Here we have been saving and planning for ourselves and we never fully understood that we have family not as prepared”.

The Retirement Planning Stress Test

Wow. Now what, right? The “stress test” planning reveals some significant potential risks and costs for Sue and Ben. Ben’s dad and his dementia diagnosis was a wake up call - with implications. Not unlike many Baby Boomer clients, Sue and Ben are retiring with aging parents. Longevity is a relatively new phenomenon for many families and good advisors know it’s the spoiler of many a well planned retirement.  

Patrick presses his case. “Better to prepare for what doesn’t happen than to just hope it doesn’t happen”. But it’s still difficult for Sue and Ben. They are conflicted, they admit. They have taken care of themselves. But they also recognize their obligation to family. Patrick empathizes with their dilemma. “You work all your life and you provide for this moment - and the reality is that people you love have not prepared as well. Now what??” 

All Set - On the Surface

The main reason Sue and Ben are “hidden in plain sight” is that they appear to be all set. Compared to most clients, they have followed the planning path and have invested well. Looking at their ages and accounts would make most advisors proud. 

The typical Baby Boomer retiring couple has 2-3 aging parents. Many of those parents are surprised by their longevity. “Surprised” may include the failure to plan for that longevity - especially for the portion that requires medical care. Thought leader Ken Dychtwald of Age Wave talks about “healthspan” instead of lifespan. What is that timeframe in which you are able to live independently? For many retirees like Sue and Ben, the potential support for aging parents is an unforeseen condition requiring both considerable time and potential financial support. 

How Do We Say No?

In addition to their parents, Sue and Ben have three adult children - two are married with kids of their own. The couple has provided some support to the new families and would like to do more. “Education is very important to us”, says Ben. He and Sue had hoped to provide financial support of their grandchildren’s education but now those hope are diminishing. Raising a family in an uncertain economic climate is challenging and they want to help. 

Look for Sue and Ben - They Want to be Found

These are tough issues for any family and typically difficult to sort out alone. The conditions are also changing with the health and longevity of the family members. Sue and Ben look ok at first glance but face significant family concerns. Where can they turn for help? 

The Alliance for Lifetime Income has identified through research six opportunities to better engage with clients, including tips for understanding the clients’ current concerns about retirement, which may have changed since first working with their advisor. Please see more at https://resources.protectedincome.org/pdf/New-Client-Profile-2-Sue-Ben-ALI.pdf

by Steve Gresham

My Family Made Me Do It

I was fortunate to know all of my grandparents and three great grandparents - and to see all of them battle significant and scary events in their latest years. All of my older relatives were tough, independent people who lived on their own as long as they could. Here are their stories of retirement wreckage.

The Bear Market 

One of my grandfathers was a chemist - analytical by nature. He saved for retirement and left early at 62 in 1970. A wealthy executive friend turned him on to stocks. He never talked about any of it with me - just a young teen - but he couldn’t hide when the 1973-73 market crash slammed his account. Adding to his misery was the Arab oil embargo and gas rationing, keeping his new boat on the dock.  

Fortunately the house appreciated somewhat and after my grandmother died, my grandfather sold their dream home and moved closer to family in North Carolina. Upon arrival, he was befriended by a very nice younger lady at church. It took some time for my mother and my aunt to wise up to Mary’s con game and my grandfather moved again to a nursing home in New Jersey. 

The Home Invasion

My other grandparents lived in the small West Virginia college town where my grandfather had been president for nearly 20 years. Small and safe, they thought, until the day someone kicked in their front door and made off with all of their silver and jewelry. 

Crime was the last thing they feared in Bethany, WV, so they also headed South to an independent living community on a golf course in North Carolina.  My grandfather continued to speak and serve on boards until he passed away in 1994. 

My grandmother was a great putter, ballroom dancer and concert pianist. She hosted a birthday party every year for herself and everyone in the community aged 90+. The local newspaper provided lavish coverage. She eventually became blind from glaucoma and moved to a nursing facility in Pennsylvania nearby her daughter and granddaughter. She lived to 101 - no one more surprised than her. 

Losing Your Mind - And Your Body

My father-in-law was a big personality and a golfing fanatic, eyeing a retirement on the links in Hilton Head after unwinding his business. The melanoma diagnosis was a surprise, though his twin had pre-deceased him. 

He was a fighter but when doctors told him more surgery would end his mobility, he gave in with his customary purposeful attitude. One of his final instructions to my wife was, “I’m worried about your mother - something isn’t right”.  He was only 75. 

That something was Alzheimer’s disease, diagnosed a short time after my mother-in-law burned a pot cooking lemons on her stove. At age 74. My wife and her sisters shuttled back and forth, trying out home care aides and managing schedules around jobs and young kids. My wife visited so often we violated the limit of days we could be in New York State and paid a significant penalty in state taxes.

A fall broke her femur and set off a scramble to find a facility. Costs were outrageous but more alarming was the shortage of acceptable facilities and open beds. Only through tears of frustration did my wife secure a spot in a Westchester assisted living and nursing pavilion - for $20k/month. 

Unable to remember the names of any family, my mother-in-law lived in a shrinking world with heightened fear until she died. Everyone remembers her for her poise and pride and generous heart. Her final years cannot eclipse that view. 

People talking about aging long before it’s real often speculate about whether they want to be of sound mind or body when they are old. Neither path offers a good ride - and good luck talking Mother Nature out of her plan for you. 

The Hurricane

My Florida grandparents lived on Sanibel Island for 18 years without a single hurricane. When Andrew crushed the Miami area, more refugees headed West - to the Gulf Coast. 

My parents never spent much time in Florida and I was surprised when they decided to relocate to Sanibel in 2004. They had a small house up North but ultimately found one place simpler and easier. The week after they finished renovations, the first hurricane in a long time, Charley, struck Sanibel and Captiva. Their house was ok, my condo at South Seas was knocked flat. 

My father hated Florida. My mother loved it and was soon involved in everything. My father was increasingly isolated - his work had been his identity. Always a great author and editor of medical texts, he penned a novel in hopes of growing a new passion. It was rejected by a publisher - a fact I learned only when I cleaned out his office after he died in 2016. I always wondered why he stopped writing. 

Around 2014-15, my parents and I had a tough conversation about long term care costs. They owned retirement annuities from my dad’s employment, more than adequate to cover their modest living expenses. They paid off their home. 

It was a battle with my mom, but we settled on buying a unit at a large continuous care retirement facility just off the island in Fort Myers. Mom declared she would never take residence, but the decision proved a godsend when my father was diagnosed with pancreatic cancer in the fall of 2015. He checked in to the nursing pavilion in October and passed away in February. He never went home. 

Mom settled in to her new life, motivated by close friends and her many responsibilities. She traveled some, including trips to Scotland and Alaska with family in tow. 

Fast forward to September 28, 2022 and the assault of Hurricane Ian. Evacuating at the last minute amid an uncertain forecast, Mom hunkered down with my sister on the mainland. 

When the terror ended, Sanibel had been destroyed by 150 mph winds and a tidal surge as high as 18 feet. With an average height of just three feet, Sanibel was overwhelmed. 

With her friends, her annuities, her activities and the manageable pace of an island with a 30 mph speed limit, Mom had it all. Until she didn’t. 

Just Plan That the Plan Will Fail

It’s impossible to predict what will actually happen and the best financial advisors don’t do that. They help clients plan for the best, most reliable path. And then the really good advisors run that plan again with as many “what ifs” as they can think of. And none of these “what ifs” are good surprises with positive outcomes. They don’t expect a winning lottery ticket. They plan for bad news or bad developments so they can help protect clients and their families from those most feared situations. Because they happen to more people than you think - and very often to people you know.

Steve Gresham is the managing partner of Next Chapter, a community of 60+ financial service organizations dedicated to improving retirement outcomes for all. 

by Steve Gresham

Pick Up the Phone - It’s Older (and Wiser) You Calling

Most people are not prepared for retirement. And most people are not prepared for a natural disaster. Is there a connection? 

• More than 20 million houses in the U.S. are at risk from serious flooding. Fewer than 5 million have flood insurance.  
• One in 10 Americans aged 65+ suffers from Alzheimer’s and more than 20% have some form of dementia. 3.3% of the population has long-term care insurance.

Retirement stress and natural disasters both pounce on people who think they might be OK, but aren’t really sure and haven’t really taken precautions. And besides, the “forecast” is never right…right?

Our Brains Don’t Plan

Blame our brains. We have trouble with abstract concepts. We can’t process “odds” – we process only what we can see or feel or deposit or fear. Clients get in big trouble with retirement planning because they hear the numbers but don’t really “see” themselves forward. Really good advisors close the gap.

It is ironic that the designer of our planning deficient brains is the same Mother Nature who is most often the culprit when we fail the worst. The real risk in retirement is not running out of money, it’s running out of options. 

But There’s Never Been a Big Storm Before

Take my mom’s neighbor, call her Marcie. Marcie and her husband moved to Florida for retirement and had all their bases covered. He died a couple of years ago with their home fully paid for and modest but adequate savings. 

Mom, Dad, Marcie and her husband made it through Hurricane Charley in 2004, which slammed their island and completely deforested the historic canopy along Periwinkle Way. Charley was mostly wind so damage was minimal at both homes. Irma in 2017 was different and loomed more threatening. My mom evacuated to the mainland and spent a couple nights sitting in a folding chair in a school gym with no air conditioning. At age 83. 

Again, the storm was forecast to be worse than it turned out. Local preparation for the evacuation was uneven and led to public recriminations. 

When Hurricane Ian hit the island on September 28 last year, a wavering forecast and last minute evacuation orders confused many residents. Too many recalled the pure discomfort and inconvenience of Irma and didn’t gird themselves for the disaster to follow. 1,000 people stayed on the island and were hit with 150 mph winds and storm surge as high as 18 feet – on an island an average three feet about sea level.

Mom was slammed. Four months later we are still working with the insurance companies to determine her compensation. The auto insurance company was awesome - paying cash for her car and removing it fast. The flood company low balled an offer.

One Storm, Two Levels of Preparation

Nearby, Marcie has no flood insurance. With her home free and clear, Marcie let the homeowner’s insurance lapse, “reasoning” that it wasn’t required anymore by a lender. 

Mom has both flood and wind coverage. But not Marcie. She cannot afford to rebuild. She has two adult children who both live modest lives in modest homes with kids. Neither the kids nor Marcie want to live with each other in those conditions. 

My wife and I are empty nesters with extra bedrooms. Mom was able to stay with us for weeks and grind through the endless paperwork with help. 

Hey You, It’s Me – I Mean, You

One of my favorite advisors over the years focused on life insurance and retirement income – “protection” strategies. His greeted every new client with “bad news”. “I know what is ahead for you, it’s my job”, he would start, “And I will have advice from you that you will wish you accepted. To make it easier, I’m going to be someone you don’t know but who knows YOU very well. That person is you, at age 75. And every time we have a disagreement about the steps I suggest for your plan, you will be arguing not with me, but with you”. He always got a kick out of saying it that way.

Simple but effective. Makes it real. 

The Powerball winner in Maine beat odds of 292 million to one. Why does the scratch off have more traction than the 401(k)? It’s real, in your hand. And those three golden crowns just might be hiding there. Why not, right??

Ask your older self for the two bucks.

by Steve Gresham

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”: 

1. How much money do I need in retirement?
2. How much do I need for healthcare?
3. How will I pay for healthcare, especially as I get older?
4. Will I be able to age in my home?
5. 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.

by Steve Gresham

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. 

by Steve Gresham

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!

by Steve Gresham

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

by Steve Gresham

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:

1. How should we define "retirement advice"? What is “financial wellness”?
2. How will we know we are solving client needs?
3. What do advisors need to be effective and efficient?
4. 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.

by Steve Gresham