“A competitive world offers two possibilities. You can lose. Or, if you want to win, you can change.” – Lester Thurow, Former Dean of the MIT Sloan School of Management, Author
The financial services industry is full of competition. Advisors from wirehouses, RIA’s, independents and brokerage firms are all competing for the same thing: more clients, more assets under management, more G.D.C. Throw in robo-advisors and the pool thickens. Financial services is a business built on competition, and only the strong can survive. What does it take to win? And who will succeed?
First let’s consider the opportunity. The Baby Boomer generation has the largest number of people retiring in history - 10,000 every day – and millions right behind them. The Mass Affluent Baby Boomers need a roadmap to navigate the challenges facing them throughout retirement. Herein lies the opportunity.
The challenge is that this group has seen many a recession and they are weary of what a downturn could do to their hard-earned savings. They don’t have time to make up the difference, or for “do-over’s”. Accumulation strategies are less important for this group. Rather decumulation skills are needed. Decumulation skills include retirement planning, timing of asset draw-downs, stacking various income sources, longevity planning, and Social Security planning in addition to portfolio management. An advisor that can help create a successful decumulation strategy provides value and creates a “sticky client” for life.
In years past, advisors were sought primarily by those looking for accumulation – the phase of building wealth and accumulating assets. While that is still important for clients in their 30’s, 40’s and early 50’s, there are 77 million Baby Boomers that are ready for the next phase: decumulation. Because Boomers are living longer, have seen the rise in healthcare costs, and are the first generation to use “retirement” to do new things, they fear outliving their savings. This fear hits homes with all income levels, even the Mass Affluent and High Net Worth demographics. A robo-advisor, no matter how sophisticated, cannot address these real human fears. An advisor armed with Modern Portfolio Theory and its corresponding pie charts will struggle to retain clients as traditional “fixed income” investments cannot support the rising costs of healthcare and Boomers lifestyles.
There is a new playing field for advisors, a new set of challenges, and some very big opportunities. The key is cracking the code.
Competitive advantage is being able to move quickly to capture value before competitors. Firms that are too large may not have the agility. Firms that are too small (the solo practitioner) may not have the resources to reinvent themselves. A firm that offers a team approach, however, has the flexibility to absorb changes. The team will be able to demonstrate its value with its breadth of knowledge, combined years of experience, most likely including CFP®’s, ChFC’®s, CLU®’s, and RICP®’s, and through its collaborative efforts with other professionals – CPA’s, attorneys, business valuation experts.
Technology is no longer an option. Where once advisors spent hours creating financial plans, advisors now need to quickly aggregate data for clients, give them 24/7 access to all their organized information in one place. Sophisticated financial plans will also be required and will need to include all sources of income, investments in and out of house, and intricacies of Required Minimum Distributions, Social Security strategies, and What-If scenarios. Comprehensive financial planning is essential for the soon-to-retire Mass-Affluent. All the pieces of the puzzle must be considered to provide a clear picture of where they stand today, provide a road map for retirement. With Boomers’ biggest concern being whether they will run out of money in their lifetime, the value in presenting a clear picture of what they have in an organized, easily accessible and understandable way provides a solid ground to build a plan and ease their concerns.
Helping the mass affluent Baby Boomers move into retirement confidently means answering their questions: Will I outlive my money? Am I prepared to deal with the increasing costs of healthcare? What happens to my spouse, partner, or children when I die? The advisors that help answer these questions and alleviate these worries will win the trust, respect and loyalty of clients. This will grow an advisor’s practice organically well into the future. There is a need for those in the industry to pivot and demonstrate their abilities to address the concerns of retiring adults for the next 20 years as the bulk of the Boomers retire, to provide technology, and accept the challenge - change in order to win.
Tom Goodson is the managing partner of AmeriFlex Consulting Services, an advisor training firm located in Santa Barbara, Calif.