In addition to creating psychologically satisfying strategies, advisors can reduce client tensions associated with managing personal savings, by re-training clients in how to measure progress based on their retirement status and their desire for income.
My belief is that once a client is in the income phase of retirement, account progress shouldn't be measured primarily by end-of-month, quarterly or annual performance, but more by how much money you put into a client's pocket throughout the year. I use a basic rent comparison to help clients understand both my investment approach as well as how to evaluate their statements each month. I simply explain that buying a group of blue-chip dividend stocks is like buying several rental homes in different neighborhoods. Year over year, the value of those houses may go up and down, but the overall value doesn't matter as long as the rent keeps coming in. By shifting their focus to a more consistent aspect of their portfolio, over time they will see that, although their account balance changes, the income keeps coming in. This approach proved invaluable last September and October when some dividend-paying stocks were off 5% to 10%. Instead of focusing on the reduced balance, clients were directed to see how much "rent" was still being generated.
Format Change
Finally, when it comes to developing retirement income strategies, I encourage advisors to be aware of the emerging competition that's reshaping the advice business. There's a lot of talk in the industry about using social media, but there are groups of up-and-coming competitors that are stalking clients. They're providing free and low-cost investment advice and challenging the value some advisors provide by bring into question the real costs and value of each advisors business model.
These competitions include Jim Cramer, SeekingAlpha.com, Fool.com, paid newsletters and the like. Cramer recently hit 500,000 Twitter followers and SeekingAlpha.com just reached the million subscribers mark. I consider SeekingAlpha.com and Fool.com to be a lot like the former underground rap music industry. If you look back 15 to 20 years, a select few rappers were producing top mainstream hits. Fast forward to today and the music charts are riddled with rappers. And here's the reality: It happened whether anybody liked it or not and so, too, may be the case in our industry if advisors don't face or leverage the changing landscape. This alone is the reason I suggest advisors not only adapt and find ways to embrace the changes being manifested but to also use strategies like those mentioned above to differentiate themselves on as many levels as possible.
Advisors should expect this emerging competition to make inroads into their business fairly quickly, particularly if they don't teach clients how to measure progress on their account statements. Advisors should be prepared to have clients and prospects ask them not only why they are better and different from the guy down the street but also what value they can add outside of what they are getting from Mr. Cramer and other online experts ... the ones who delight in educating readers and sharing their opinions and research for free.
As the retirement landscape continues to change, advisors can integrate industry trends, psychologically satisfying strategies, and knowledge about emerging competitors to not only add value to client relationships, but also differentiate themselves and their progressive business model.
Follow Robert on Twitter @robertlaura. He is the president of SYNEGOS Financial group, co-founder of RetirementProject.org, creator of the Laddered Dividend Portfolio, and author of Naked Retirement. He can be reached at [email protected].