The “Fantasyland” I refer to here is the financial industry’s typical approach to retirement income. It’s an ancient myth or a hallucination. Here’s why:
Nearly every person with any kind of financial and/or insurance credential has been taught to look at the world through product-colored glasses. In Fantasyland, no matter what the client wants, the industry equates it to a product purchase. Between the securities, the life insurance, LTC, the annuities, every American has been tagged with pre-purchase probabilities and added to the calculation of “share of wallet.”
What’s wrong with that?
After all, it’s the products that allow us to solve retiree problems, right? It’s the products that generate our incomes, right? While those arguments are basically true, there are two things wrong – and they’re big ones: 1) they fail to consider the client. 2) products by themselves could only provide a solution for an overly-simplistic life. There are way too many complications and issues at play in any retiree’s life today.
Look at a client, his/her life, lifestyle, and future activities – in all its glorious complexity. In the olden days, simplistic was the “law of the land.” Dad would work for 20 years and retire to the front porch rocking chair. His only financial need was some life insurance and a couple of stocks. Know anyone who fits that model these days? I seriously doubt it.
Today, the “law of the land” has dad retiring early and rolling a 401(k). He owns a life policy, has some mutual funds, ETFs and he probably trades stocks on E-Trade. What’s wrong with that combination? Nothing, if he lives in Never Never Land and is going to remain that same age forever, as though he were Peter Pan.
With that profile in mind, you and I both know that Dad is getting older and his actual needs are going to change. But because this is Fantasyland, his financial advisor is going to keep bringing him products to purchase, keep him in the market and keep him working toward greater accumulation. His insurance agent is going to urge him to move his money from equities into a fixed annuity. Then around April 15, his CPA is going to throw a fit about his tax exposure.
What’s wrong with that?
Everything. There is no cohesion, no coordination and no logic. Like Dr. Doolittle’s Push me-Pull you, Dad is being pulled apart by competing pitches and proposals. But at least his valued advisors will be earning commissions.
Conjure the image of the typical “primo” client – one with assets. Naturally, you want to be the advisor of record, the only financial person giving advice, right? The odds are against it. The fact is most people with assets have more than one advisor. According to US Banker, the typical millionaire has 14 financial services relationships and seven advisors. Other sources report similar numbers. Why is that? Let’s see:
– 94% of “highly satisfied” clients are likely to make referrals
– 86% of “highly satisfied” clients are likely to buy additional products and services
– Zero (0%) of “highly satisfied” are likely to leave
– Most clients are concerned about losing their wealth but very few advisors recognize it
Stats from Cultivating the Middle Class Millionaire by David A. Geracioti and Russ Alan Prince
There are two points here: 1) If those numbers don’t represent your experience, your clients may not be as thrilled with your service as you are. 2) Individuals with assets tend to have multiple advisors giving them different advice.
If you were my client and had multiple other advisors, wouldn’t you be comparing service levels and results? You’d probably make a spreadsheet for comparisons, just like the employee benefits people do. Bottom line is, you would be comparing quality and looking to learn who was consistently giving you the best quality. So, what do clients think about the quality provided by their advisors? It’s not a pretty picture.
According to Prince and Associates:
– 71% of middle-class millionaires say they plan to take money away from their primary advisor
– 65% plan to terminate their advisor and find another one
– 66% said they would tell other people to avoid their advisor
* Stats from Prince and Associates research referenced in Clients Ticked Off at Their Advisors, Financial Advisor Magazine, May 2008
While Prince and Associates found those numbers relevant to middle-class millionaires, our experience is that they are consistent across all strata of people with investable assets and that means a high percentage of people either retired or approaching retirement.
The Best Advice?
What do you think the best advice is? We know advisors who put all their clients into a mix of mutual funds and call that diversification. We know other advisors who put all their clients into annuities and CDs. What do you think is the best advice for people about to retire?
People moving into and then through retirement have less and less need to accumulate. Doesn’t the risk outweigh the possible gain? However, the flip side is just as off target. Staying out of the market gives you a bucket with a bunch of holes shot through it. The solution for just about anyone moving through retirement is somewhere between high market thrill seeking and reactively paranoid. What’s more, it’s a moving target because as we age, our financial needs and risk tolerance change.
In front of us is a scenario that’s not often mentioned in polite financial company. As an industry, we don’t want to admit that we don’t have all the answers. We don’t want to admit that our advice is not the best for our clients. But as our clients turn the corner on 60 and stumble into retirement, our training and product selection is very likely to be off-target and inadequate for them. With that in mind, let’s take a step into something better. Now we move from Fantasyland and take a stroll into Frontierland.
Welcome to Frontierland!
Any reasonable plan to distribute income to a retired person has to include at least these four elements: Social Security, Retirement Account(s), Personal savings and the client’s lifestyle. What’s missing?
The Missing Element – You, the Advisor, CPA, or Accountant
Here is how you and your training and abilities can affect the life of someone in or near retirement:
1. If you are not thinking about the client first, you could do some irreparable damage. Many retired people simply don’t have enough years left to wait for the market to rebuild losses.
2. If you do not yet have the expertise to combine social security, retirement account(s) and savings – to create the exact type of retirement income that individual client wants, you could do even more irreparable damage. In fact, if you don’t have that expertise, you’re probably doing more harm than good.
3. If you do not know how to build a thriving business around this type of distribution, you are doing yourself (and your clients) some irreparable damage. Then, if you go out of business, you hurt them again. Doesn’t it make sense to learn how to build a thriving business, rather than focus on selling products?
4. If you do not have a mentor who has already succeeded in this area, you are doing yourself irreparable damage. You can’t easily learn this on your own and why would you want to try?
5. If you do not already use financial models based on delivering powerful and effective solutions to seniors and/or retirees, you are likely doing yourself and their families irreparable damage. This is a glimpse into Ethics Land.
What does your target market see in you?
I love this experiment. Just for a minute, put yourself in the mind’s eye of your target market. Become one of them. Look at the wide variety of choices offered to them. Do they really trust that you understand them and can make good decisions for them with insight and forethought? More importantly, do you know how to make your decisions based on their best interest and not your own personal gain?
Every time I guide someone through this experiment, I see their eyes pop open as though it is the first time for that person to see the financial world through the eyes of his/her own clients. They immediately realize that their clients see a financial world cluttered with too many choices, too many products, too many companies, too many sales pitches, too many channels of confusion and too many advisors whose goal is to make money, rather than take care of their clients. Beep! The brain shuts down.
Remember, your clients don’t want a company. They don’t want a product. They only want real solutions to their financial problems. But what do they get from the financial industry?
The Ancient Legend. There is an ancient legend of an elephant and six financial advisors with 20/20 vision. Each was asked to stand in the elephant’s room and then describe what he saw. The first claimed to see nothing. The second said he saw his firm’s logo color. The third recognized the elephant from advertisements. The fourth said he didn’t believe in elephants. The fifth claimed that elephants and the people who associate with them were unimportant. And the sixth demanded to be paid for his time before answering any question.
That ancient legend illustrates something that is vital to retirees and seniors. The elephant represents an enormous amount of wealth that has been accumulated and is still being added to. It is the collective assets of retirees and seniors – people 60 and better. The six advisors represent the prevailing attitudes of today’s financial advisors: denial, company loyalty, ignorance, misinformation, marketing, ego and the profit motive. We call them the “Six deadly sinners.”
Who’s in Charge?
The financial industry has been stuck in a behavior loop for decades. The call to action has been: Accumulate! Accumulate! Stack that money up! The trophies the industry loves to hang on every inch of wall space have been based on amassing wealth – the clients’ wealth. The millions are like notches in the pistol grips of hired guns. It’s as though the client’s money becomes the advisor’s money. After all, it’s the advisor’s goal to get ever more money under management, right?
While that strategy may have once made sense, simply because there were enough investors at an age where a focus on accumulation made sense, it’s not true today, and it becomes less true with each volatile day that goes by. Let’s look at some facts:
1. The leading edge of Baby Boomers turned 60 in 2006.
2. This year, 8500 Boomers turn 60 every day.
3. By 2010, there will be 10,000 Boomers turning 60 every day.
4. When people turn 60, they begin to shift their focus from accumulation to distribution.
What do those facts add up to?
Something oh so simple, and appar¬ently oh so invisible as that giant elephant munching in the room.
The point is simple: Combine the growing Boomer demographic with the already strong 60-80 year old contingent and you start to get a clear picture. It’s a picture of an industry that is refusing to accept the truth in the facts. An industry that is failing its older clients. An industry that has an obsessive compulsive disorder – it can’t stop focusing on accumulation.
So what? The market is changing faster than the mindsets of the financial advisors who serve the market and the CPA/accountant who is hesitant to advise. While distribution is “where it’s at,” most advisors are mentally, emotion¬ally and professionally unprepared to serve their clients’ distribution needs.
– Distribution represents a totally different mind set – money goes out instead of coming in.
– Distribution requires a totally different product mastery – more fixed products and fewer equities.
Traditional Advisors miss the mark
Picture an 80-year-old man. What is the logic of placing that person’s financial security at risk in equities? Zero? Perhaps.
But in the years between 60 and 80, shouldn’t there be a financial strategy that combines fixed vehicles and equities on a sliding scale, shifting more focus to the fixed side with each year?
Bottom line – it seems to go against the nature of the typical financial advisor to help a client amass savings only to then take that money out of circulation or have those dollars taken over by another person or entity – one who specializes in seniors. Not only are the typical advisors losing the asset to someone else, they are losing the ability to control the account. They’re losing their ability create further savings. Through the eyes of the typical advisor, there is little incentive to focus on distribution. To them, there is no business case for it. To them, their clients have become their own annuity and it’s insane to give it away.
Truth is, society has changed – it got older. Truth is, annuities have changed, too. Newer products provide both flexibility and incentive to the two people most important in your client’s lives – you and him. The new generation of annuities provides you (the advisor/cpa/accountant) with greater control and increased tax advantages. For example, you can maintain money in the market and control investment selection.
It seems the only people who haven’t changed are the Advisors. Could it be the giant gray peanut eater in the room is the typical advisor? Could it be the business model of the industry’s hired guns needs to go the way of prohibition, segregation and sub-prime loans?
What Does This Mean to You?
The advisor, the CPA, the accountant or the insurance agent who does not yet know how to manage the spinning plates of products, plus the client’s lifestyle, goals and personal strategies will cause many of those plates to drop. That’s you spinning those plates. And with every plate that drops, a family gets socked in the jaw. Do you want that on your head? Or would you rather make every effort to provide the most effective solutions to your clients, no matter what the commission or payout is? It’s your decision to make.
As unprecedented numbers of Americans turn 60 everyday, what seniors need and want, more than ever, is sound advice from a sound mind, a true trusted advisor. With more 85 year olds than teenagers walking the streets, the aging of the population is the most underserved demographic in America. He/she who takes the active and appropriate steps to position him/herself in front of the aging of America stands to capitalize on this demographic through appropriate strategies and mechanisms.
Robert A. Sagar President and Founder
The Senior Financial Center, Inc.
330 Sunrise Highway, Suite 260
Rockville Centre, N.Y. 11570