Along with financial analysis, advisors must know how to evaluate assisted-living facilities. They must know who actually provides good home health care (despite what the ads say). Is concierge medical care appropriate? Is it feasible for the aging parent to age in place at home? What can be done to facilitate this? 

No. 5. Advisors must assist clients with personal security issues.

Cybercrime is in the news and on the rise. What can be done to reduce the instances of online fraud? Can a client’s digital footprint be traced—and reduced—by an expert? How should one view household help, who frequently have access to the most sensitive information—and how should they be vetted? Is a client’s residential security adequate, or could it be improved? When traveling, does a client have medical evacuation insurance in case of need? How do both the advisor and client recognize and guard against the threat of elderly exploitation? 

Advisors who know these issues add value. It can be difficult for clients to separate the wheat from the chaff when it comes to examining cybersecurity products and services. And it’s challenging to integrate all this knowledge with the protection of assets, while including the right family members in holistic planning and implementation. But it is imperative to know the subject, nonetheless.

No. 6. Advisors must provide a management system for unwinding assets.

A core function of most RIA firms in the age of longevity is the management of distributions—as opposed to accumulation. Of course, asset location and tax optimization are key components for any such system.

More important, the system has to manage more than market action. Changes in interest rates and in clients’ personal goals, spending and health all play a part as well, and this renders algorithmic approaches difficult if not impossible. Here again, the funded ratio approach yields an intuitive and rigorous basis for a periodic discussion that can incorporate all these factors and point toward course corrections as needed. 

No. 7. Advisors must understand the usefulness of annuities.

It’s probable that we’re entering a multiyear lower investment return environment. What is a retiree, concerned about longevity and needing income, to do? Academics have a simple answer: Annuitize your wealth. And they wonder why the adoption of annuities is so low.

The “annuity puzzle” turns out to not be such a puzzle after all, as most investors have a strong preference for liquidity in the face of uncertainty, especially when they are uncertain about health care and longevity. A fixed annuity (rather than a pricey variable version) can supplement low investment returns with mortality credits for clients at older ages and back up a balanced investment program that might run into a bad market. 

RIAs, as fiduciaries, will have to come to grips with the effects of removing assets from AUM calculations if they are to serve the best interests of some clients. They will have to understand fixed annuities, deferred annuities and even hybrid products and know when these items are appropriate to support clients’ long-term care needs. 

No. 8. Advisors must understand reverse mortgages.

The reverse mortgage industry has improved, and in the right circumstances, these mortgages are no longer last-gasp solutions but valuable options for retirees. Correctly done, the reverse mortgage may never be called upon to generate tax-free cash—but it can improve a client’s funded ratio if necessary. 

Regulators have noticed. Recent DOL pronouncements acknowledge that both reverse mortgages and annuities will likely be a necessary part of an RIA’s tool kit. 

No. 9. Advisors must offer a digital advice platform.

The “threat” from robo-advisors has receded, but the efficiency of these online tools and their 24-7 availability will transform RIA operations. Many advisors will likely be surprised how fast generations older than millennials adopt these platforms. They will likely even begin to require robos as they increasingly prefer to interact or receive information on their own schedules, not on an advisor’s. 

The good news is that the cost savings will help RIAs handle more family accounts of multi-generational clients, which have in the past split up the investable assets into too many pools for advisors to profitably manage. So digital advice holds the promise of deepening relationships while reducing costs. 

No. 10. Advisors must create an internal development and succession plan.

RIA owners face all the same decisions that their older, highly paid clients do. Many will wish to continue working—to continue contributing their vast experience to clients with whom they’ve developed deep relationships. At the same time, they face opposing pressures from younger associates seeking greater opportunities at their firms, and clients want those state-of-the-art skills and fresh insights and energy. As do other professionals who refer the firms.

Advisors must offer those doorways to younger staff, which will require complex cash incentives, along with management and leadership opportunities. Prospective associates see the importance of working with or being part of a highly skilled team. The clients see it, too, and that will likely be a key factor in their decisions about who is best positioned to take care of them. 

In The Age Of Longevity, It’s Time For Amazing

It’s not enough to simply offer these concepts: Can you be amazing?

Just as referrals are vital to the growth and vitality of an RIA business, curation and support—not just information—will become the currency of trusted relationships. 

Historically, financial services businesses have been part of a pipeline business chain. The differences in their compensation reflected how close they were to either the product manufacturer or to the end client. In a pipeline business, there’s a step-by-step arrangement for transferring value between producers and consumers. A fiduciary RIA is on the same side of the table as a client, and thus is much closer to the consumer end of the chain. 

But at some point, the fiduciary model will no longer be enough to win clients’ loyalty. When platform businesses compete with pipeline businesses, the platform nearly always wins. 

Just think of Amazon. It started as an online bookstore and currently accounts for about 40% of U.S. book sales. But now look at the menu. How often do you go on Amazon? How many retailers has it crowded out or severely impacted? Amazon is the quintessential platform business: Its model enables value-creating interactions between external producers and consumers—and it captures a small piece of each interaction. 

It’s unlikely that any RIA will become an Amazon, but a bit of “amazing” will be necessary for the advisory firm’s continued success and sustainability.

RUSS HILL is chairman of RIA Halbert Hargrove and a co-founder of Stanford University’s Longevity Institute. He is also the chairman of the Investment Committee for MemorialCare Health Systems, the International Center for Wealth Advisory Excellence and the New Retirement Forum.

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