Challenges await advisors who shift toward retirement distribution.
Much has been written recently about the increasing
number of retirement-income-oriented clients. Most of what has been
written focuses attention on investment products to meet this demand.
Little has been written about how a practice will need to meet this
demand from an operational standpoint.
Recent studies by LIMRA and the U.S. Dept. of Labor have revealed that roughly 76 million people in the U.S. will be reaching the traditional retirement age over the next several decades. These so-called baby boomers will potentially experience an unprecedented transfer of wealth into the private sector from institutional custodians of such retirement programs as 401(k), 403(b), profit sharing, money purchase and other employer-sponsored plans. With this tremendous potential influx of investment assets, financial advisors should not only consider the investment choices to offer these clients, but how to efficiently operate a financial practice in light of these new challenges.
In essence, a practice that focuses on retirement distribution (income) issues operates quite differently from one that specializes in accumulation needs. In fact, the challenge extends beyond just which investments to use with such a client. The retirement income client may need more handholding than the same client during the accumulation years. This is due to a combination of factors.
Some characteristics of the baby boomer generation include:
Born between 1946 and 1964
Was 28% of the U.S. population in the 2000 Census
Age 55-plus control two-thirds of nation's financial assets
Increasing amounts of discretionary dollars (for some)
Absence of disposable time due to complex lifestyles
Grew up with television and computers and are Internet-friendly
The baby boomers are Internet users. In their professional life, they have been forced to confront computer use and have become comfortable, while not forgetting that there was a time when there was no Internet. Operational changes to a financial practice that include Internet delivery of information such as statements will probably not fully satisfy this client. A portion of them will still want the paper copies and most, if not all of them, will want face-to-face meetings. In fact, the total number of touches to this client will most likely need to increase substantially over the same client measured during the accumulation years. (Touches would include such things as face-to-face meetings, e-mails, phone calls, snail mail, birthday cards, anniversary cards, etc.)
This is because baby boomers have controlled their financial destiny for most of their adult lives. Whether they are professionals, business managers, entrepreneurs, etc., they all share a common belief in controlling their financial future (at least to some extent). Now that they are nearing or at retirement, they may view that retirement as a loss of control. The result could be a client who demands constant feedback from their financial advisor. The operational challenge lies in to how to provide that feedback in a cost-effective way.
The answer to these time demands may be to use a combination of techniques to give the appearance of constant attention while limiting the actual face-to-face meetings to a reasonable number. Electronic delivery of documents, information and statements can be automated to a large extent. Using a Web site with lockbox-type technology affords the practitioner the luxury of batch-uploading to the client's lockbox and an automatically generated e-mail to the client that includes a hyperlink to their password-protected lockbox.
Potentially, this could save hours of staff work in preparing and mailing out paper statements. (And, yes, there will still be those clients who demand the paper statements. But, for those who can live with electronic delivery, the cost and time savings to the practice are undeniable.)
Using staff creatively to maintain contact with clients is another way to approach the time management problem. If your financial practice is large enough to afford paraplanners or licensed financial planning assistants, you may be able to deflect some of the more common phone conversations to those staff members, limiting your contact with the client to those areas that demand your specific skill sets. An example might be a client who wants someone to explain an entry on a statement or to change a beneficiary on an account. In most cases, a staff person should be more than able to handle the request without the senior advisor ever getting involved in the conversation.
Some practices supplement their contact with clients by using newsletter services that appear to personalize the message. Constant Contact www.constancontact.com is an example of such a service. LiveOffice http://lo3.liveoffice.com/web/tra ficbuilders/emarketing.asp also offers an e-mail marketing service. And, there are many others from which to choose. You may wish to check with your broker-dealer to see if they offer a discounted service. Whichever service you choose, you should look for one that allows you to segment your clients and prospects by interest area. You can then target those interest areas with specific, relevant content.
Another baby boomer factor to consider is their lifestyle. Baby boomers tend to be active people, and their perception of retirement is the opportunity to pursue activities they never had time for during their working years. This desire for an active lifestyle in retirement requires additional income. So it is not surprising to learn that baby boomers fear running out of money (outliving their assets). Typical formulas for retirement income, such as 80% of income during accumulation years, don't apply with this type of client. In fact, the financial advisor may be looking at a sliding scale of income that is adjusted to the client's lifestyle and health-related issues. It could begin with a percentage of earned income more like 125% in the initial years of retirement, sliding into a more comfortable 80% to 90% of earned income in the middle years of retirement and eventually reaching 50% to 60% of earned income in the later years (taking into account a shift toward a more sedentary lifestyle with extreme age). These percentages would be inflation-adjusted, of course. But, the shifts described above tend to illustrate the complexity of providing stable income to the baby boomer client.
Software to help illustrate such a scenario is being developed by several vendors and should be available in the near future. Key to the use of such sophisticated illustrations is the ability to display multiple potential outcomes (Monte Carlo type simulations). By providing your client with a number of possible outcomes, with the ability to "trend line" the results, will give the client a level of understanding to on the probability of assets lasting through their lifetime. The result, hopefully, would be a discussion on the costs of their proposed lifestyle, and to what extent that lifestyle may be realistic in light of the resources they have to afford it.
In the end, evolving your practice into a retirement distribution practice does not mean that you have to abandon your accumulation clients. The challenge is to meld both types of clients into a practice in a way that is both efficient and profitable. By using strict time management techniques combined with efficient use of technology, it can be done.
David Lawrence is president of David
Lawrence and Associates, a practice consulting firm based in Lutz,
Fla., www.efficientpractice.com. The firm is an approved sponsor of CFP
Board of Standards continuing education credits and offers CE programs.