[Editor's Note: This is the second article in a series.]
One of the more surprising things about financial advisors is that, in reality, they don’t give financial advice. Rather, they diagnose and solve client problems. Financial advice is just one of many tools that they use to help clients with their problems.
However, as noted in a previous article in this series, how and what advisors do to help clients with their problems is about to change. We are at the front end of an era in which very sophisticated and low-cost online technology tools will make it much easier for clients to do much of what their wealth managers currently do for them now. And unless advisors substantially expand what they do for clients, their fees are going to get crushed.
More importantly, client problems are going to be very different in the future than today. Two reasons: people are going to live much longer and at the same time they are going to have to function in an economy that is changing at an accelerating rate.
To be sure, this is not more of the “Millennials are so different and so much more sophisticated than their parents that they will have completely different needs, communicate differently and not need or want the advice of another person” narrative that has been widely peddled. In reality, every generation ultimately faces the same problems—careers, marriage, kids, etc.—that only get more complicated over time. (And to paraphrase Mark Twain, as one gets older, their parents suddenly seem a bit less clueless.)
Rather, everyone’s financial life is about to become more complicated. More specifically, according to the Stanford Longevity center, for every three years that someone lives, their life expectancy goes up by four months. But about 70 percent of all longevity increases to date have been from decreases in infant mortality.
This is about to change. Generally healthier lifestyles along with a series of likely forthcoming medical breakthroughs (including immunotherapy for cancer as well as new brain treatments) are going to make these numbers spike. Soon it will become commonplace for people to make it to 100.
But not everybody—rather, just those with money. An MIT study found that men in the top 1 percent income bracket already live 14½ years longer than those in the poorest 1 percent. There is likewise about a decade difference between women in these categories. And longevity increasing at a rate that is 10x faster for people in the top 5 percent of incomes versus those in the bottom 5 percent.
Consider for a moment the implications. We currently have a system (Medicare) that effectively subsidizes health-care costs for the wealthiest in our society for more than a decade longer on average than it does for the poorest. And this system is already going broke (currently projected to do so in 2026) and is being funded by a country that is awash ($22 trillion) in debt. How is this either politically or economically sustainable?
Now consider what this will mean for your clients. How good is any financial planning if someone suddenly lives 15 to 20 years longer than he or she originally expected? Add to this, a major assumption in most planning to date has been that Medicare will pick up the lion’s share of the health-care costs for those who are over 65. That is clearly going to change.