Let’s acknowledge the stress that we advisors are facing today in this new world of financial planning. Technology development is creating an atmosphere of fee compression. At the same time regulatory changes are demanding more oversight, documentation and, quite frankly, more liability than we have ever faced in our careers. According to Department of Labor studies, financial planning will be one of the fastest growing careers in the coming years, thus creating increased competition and pressures to find innovative and efficient methods to differentiate ourselves from this increasingly crowded space.
And yet, we are on the cusp of the greatest opportunity in history for financial planners. With 10,000 boomers turning 65 every day and over $25 trillion of assets needing to be positioned for retirement income, there is literally a tsunami of money moving our way. According to a study by Franklin Templeton, 63% of pre-retirees are willing to change advisors if presented with a formal, structured retirement income plan. The days of using a simple “set it and forget it” systematic withdrawal strategy are over. As are the days of a single product solution.
The money is in motion and a recent survey by Dennis Galant concluded that advisors who can demonstrate a specialty in retirement income planning can nearly double their average capture rate.
Where do I begin?
Retirees want a plan that is focused on a strategy, not a product. The strategy must be intuitive, customizable and easily adaptable to all the changes that take place during a retiree’s lifetime, including market changes, tax law changes and most importantly life style changes that take place during the aging process. Additionally, retirees need help with Medicare choices, trust planning, efficient wealth transfer and want assurance that their survivors will be taken care of. Retirees want a plan that can be monitored with easy to understand “progress reports” along the way.
Whether you believe it or not, retirees are looking for a lasting relationship with a trusted professional, who can help them with the myriad of decisions they must make during retirement. We know of many advisors in our program who have, as their best clients, those DIYs that realize they now need help on the distribution side of their wealth.
Simply stated, retirees want peace of mind. They want confidence in their decision to retire, permission to spend without guilt or worry, and the freedom to enjoy their retirement without the worry of going broke.
There must be changes to current thinking and technology offerings. Retirees must get out of their accumulation “mind set” and change their focus to distribution. Advisors need a new value proposition and technologies must adjust their emphasis and focus on becoming partners with advisors, not competitors.
It starts with a Retiree’s mindset
As advisors, we must change some definitions for our retiring clients. Clients need to focus on ROI but re-define it from “Return on Investment” to “Reliability of Income”. In other words, we’re no longer in a yield chase but rather a sustainable, inflation adjusted income chase. Robos will continue to develop technology to more accurately and inexpensively manage assets. As advisors, we don’t want to be in that “race to the bottom”. Consequently, our survival and success will come from moving from an asset manager to a retirement income plan manager.
To make this happen, Advisors need a comprehensive retirement income program to complement their existing business model. They need to understand that retirement income planning is not just a cash flow analysis. The decisions previously mentioned cannot be automated and only provided by a personal relationship with a professional advisor.
For the past 30 yrs. I have been able to manage emotions and ultimately curb bad client behavior by utilizing a Time-Segmented distribution strategy. For example, in 2008 I hosted a seminar for my clients. Everyone in the audience was obviously worried about their investments. I reminded them how the segmented model works and told them to think of their portfolio like a forest. They were all thinking that their entire forest was on fire.
The reality was that the portion of their forest that was providing income was not on fire. The portion that was on fire wouldn’t be needed for income for another 10-20 years from now. By then it would have replenished itself through market recovery and there would most likely be no signs of damage. This gave them the courage to stay invested. Everyone was still getting their monthly check from the protected segment, and not a single client elected to perform any rash liquidations.
So why aren’t more advisors using time segmentation? Much of the reason stems from the fact that current retirement income technologies are overly focused on the creation of a plan, i.e. a strong proposal system, but most lack strong support on the proper implementation of the plan and few have created any systems to track, manage and monitor the plan. Even fewer are tied to any specific strategy. The very things retirees want the most are sadly lacking. For retirement income planning, we feel the emphasis should reverse.
To be clear, we aren’t saying creating the plan isn’t important, what we are seeing is a huge void between what advisors need to successfully execute a decades-long income plan and where software platforms are providing most of their value. By shifting this emphasis, the advisor will come more in line with client need, be a more effective plan manager, and be able to finally deliver on the promise clients are expecting: the ongoing management of their plan, which ultimately will give them the peace of mind they crave.
A unique opportunity
Join me on October 18th at 4:00pm ET for an FPA hosted overview presentation of IncomeConductor, a retirement income platform that delivers the peace of mind that your clients and prospects are seeking by making time segmented plan management simple and scalable.