What will your firm look like in 2015?  With about 75 million baby boomers retiring, different than than it does now

    What do about 75 million Americans heading toward retirement sound like? Like the most demanding stampede for investment and financial planning advice the financial services business has ever heard.
    How do you fully capture this opportunity to transform your business as the investable assets of U.S. households doubles to more than $30 trillion in just the next decade? Some of the best and brightest minds in the business are asking that very question.
    For insight on how to create the most competitive and profitable future-minded firm imaginable as the largest demographic shift in history looms, we turned to Undiscovered Managers and JP Morgan Funds, which provided us with an exclusive first look at their five-year update to the controversial study, The Future of the Advisory Business.
    For a definitive lineup of the products and services baby boomers will need and demand, we talked to leading analysts at Charles Schwab, Fidelity and Tiburon Strategic Advisors.
    To understand better how to position your firm to service boomers as they move from accumulation to distribution, we interviewed executives at LPL Financial Services, Walker Capital Management, Armstrong, MacIntyre & Severns and 50-Plus Communications Consulting.
    The goal is simple: To show you what the firms best-positioned to capitalize on retiring boomers' need for investment advice will look like, so you can infuse your strategic thinking and decision-making with these facts now.
    Currently, boomers account for fully one-third of all U.S. households. About 46 million of the 75 million boomers, born between 1946 and 1964, are expected to retire in the next ten years, doubling investable household assets to more than $30 trillion. "This clearly represents the single largest wealth redistribution event in history," says Joshua Rymer, senior vice president at Schwab Institutional in San Francisco. "Just the numbers and demographics alone mean significant opportunities for the financial services industry to help."

The good news is that boomers need assistance and those who seek it, especially wealthy boomers, who are skeptical or downright cynical about Wall Street, are increasingly turning to independent advisors. Traditional brokerages have lost 11% of their wealthy clients in the past two years, and shrinking satisfaction ratings suggest the trend will continue. More than ever, the affluent are turning to independent advisors, with 65% reporting that they intentionally avoid brokers affiliated with a large financial institution, according to Spectrem Group in Chicago, which tracks the investment behavior of the wealthy.
    And while we've all heard about do-it-yourself investors, by all accounts it would appear that boomers desperately need retirement income planning help. That's especially true if the recently retired are any indication of how boomers themselves will manage wealth post-retirement. More than 15% of those who retired between 1992 and 2002 have already depleted half of their retirement savings, and 20% were on track to deplete it all before they die.
    That's the startling finding of the Employee Benefit Research Institute's latest study on new retirees. Research from Putnam Investments found that one in five new retirees are struggling financially and only 20% have a systematic withdrawal plan for their assets, greatly increasing the likelihood that they will outlive their wealth. When asked what their biggest regret was, 70% said they were most sorry they had not saved more money. And 27% wished they were back at their old job, rather than retired.
    So while baby boomers will be ripe in terms of their need for investment advice, you probably won't want all of them as clients. And the rest of the financial world, spurred on by the success of the advisor model, will be seeking those households who have larger sums to invest right along with you. That's why it's important that you build and position your firm now to serve boomers profitably. Here's how.

How Much You Manage Matters

The message of the new Undiscovered Managers study isn't so different today than it was five years ago. If you want to compete and run a highly profitable business, it's critical to have at least $100 million in client assets under management and be growing. "That's the way we see it, " says Sharon Weinberg, managing director of the institutional advisory business at JP Morgan Funds in New York City, which acquired Undiscovered Managers and was instrumental in producing the soon-to-be-released second study.
    As predicted five years ago, firms are shaking out into three categories, Weinberg says. There is a small group of dominant competitors with billions of dollars under management; a collection of specialty advisory shops or niche competitors, which can still be very profitable; and last, the thousands of small practices that are at best marginally profitable.
    Margin compression, the increasing cost of client acquisition and rising compensation and regulatory costs will all make continued growth an imperative, says Weinberg. "There are lots of way to be successful. You can be an excellent wealth manager, a dominant geographic player or a niche player, but life will more competitive and much tougher for the smallest players." Smaller firms produce on average just $70,000 in annual pre-tax income for their sole proprietors, prompting Weinberg to wonder if these folks are taking a salary at all.
    One prediction from the original 1999 Undiscovered Managers report that has failed to materialize is that a wave of consolidation and roll-ups would sweep the profession, creating lots of large entities. With the exception of Jessica Bibliowicz's National Financial Partners, most attempts to roll up advisory shops have proved to be false starts.
    Most of the larger firms have managed to grow organically, while most of the consolidation activity has occurred at the small-firm level. There have been scattered mergers among larger firms, and a few regional banks like Mellon and The Harris have purchased selected advisory firms.

Are You Ready For Competition?

Few advisory firms have dedicated personnel or other resources to marketing, and many have yet to suffer as a result. This doesn't mean their marketing void won't eventually hurt them.
    "Competitors are moving into the advisor space to capture boomer assets pretty aggressively, so you have to put marketing muscle to work for you," Weinberg says. "We hear a lot of lip service about marketing, but only a few firms have hired marketing directors and are doing client surveys and active referral programs."
    Depending on your specialty and where your firm is located in the country, you may not have gone toe-to-toe with other advisor types for boomers or other clients yet, but the day is coming. "Right now, we see close to 400,000 advisors out there. There just isn't a lot of room for additional advisors," says Jeff Nagy, a research manager with Tiburon Strategic Advisors in Tiburon, Calif. "If you do the math, you see that 400,000 advisors are targeting the same 40 million households that have roughly $100,000 or more to invest, which leaves just 100 possible clients per advisor."

Market Upstream Now

If you can make more money providing essentially the same types of services to some clients rather than others, and a wave of potential new clients like the boomers is heading your way, why not choose the more profitable among them? It makes sense, since costs are increasing almost across-the-board at advisory shops.
    Compensation and compliance expenses, in particular, are soaring. "One headhunter told us that the cost of experienced advisory employees increased 40% in the past five years," Weinberg says.

Simply put: It's time to upgrade your client base or expect to hit a wall in terms of capacity and profitability. One way to move upstream, of course, is to create a program to clone your best clients by actively asking them for referrals to business associates, friends and family who are very much like them in terms of assets. "The next stage in the evolution of this industry has to be focusing on client acquisition," says Weinberg.
    That means focusing on clients you like to work with, who you can grow with and who are most profitable to the firm. Once you do that-identify your niches-all of your communications and marketing efforts will flow in a more effective and directed manner, says Michael P. Sullivan, author of 101 Easy Ways to Increase Business with Boomer-Plus Clients (www.graymoney.biz).
    But some advisors who have conducted client surveys discovered that clients have some surprising attitudes about referrals. Balasa Dinverno Foltz used to send clients who referred prospects a gift as a token of appreciation, Armand Dinverno says.
    After a client survey revealed many clients felt uncomfortable about accepting tokens, they stopped. That says a lot about how views on conflicts of interest in the post-Enron era have filtered down to the client level. But it also indicates that clients realize advisors' value proposition is real. By providing referrals they think they are doing the prospect, not the advisor, a favor.
    If you wait until boomers actually start retiring to market to them you'll miss the best clients, and worse, the opportunity to have them roll over their 401(k)s and other retirement plans intact. When left to their own devices, 70% of affluent boomers roll out of or are planning to roll out of their retirement plans unadvised, according to a new survey of boomers by Bain & Company, a Boston-based global business consulting firm.

Rethink Your Investment Planning

"One of the trends we're already seeing is the movement to position your practice to speak to the needs of those boomers moving from accumulation to distribution," says Jonathon Eaton, senior vice president of product marketing at LPL Financial Services, based jointly in Boston and San Diego.
    Helping clients decide which assets to tap first can be instrumental to tax efficiency and extending the life of assets. Currently, firms such as LPL and Schwab are working on the next generation of technology to give advisors the tools they need to show clients all of their retirement income options and how much income they can generate at various risk levels, while also getting a clear sense of how long their assets will last under various scenarios.

Simplicity will be key to the success of all boomer developments. "Complexity in the way of products and services that are offered to retirement audiences continues to have a stranglehold on financial institutions that cater to affluent boomers," says Andrew Schwedel, a financial services consultant at Bain in San Francisco.
    Products that have already started to garner boomers' attention include annuities, long-term care insurance policies and reverse mortgages. Immediate fixed annuities, as a part of a boomer's overall retirement portfolio, is starting to be viewed by some as an anchor-a way to ensure retirees can pay fixed monthly costs and still leave part of their portfolio invested in equities, seen as essential as life expectancies increase.
    Living benefits on annuities are providing boomers with more options for generating income for themselves and heirs, Eaton adds. Legacy and intergenerational planning will also become more crucial, since boomers are the wealthiest generation the world has ever seen and see themselves as change agents and activists, adds Sullivan.
    Creating expertise in-house or in partnership with others in the areas of insurance, alternative investments and real estate will help more advisors become wealth managers, a goal that 90% say they aspire to but only a few have become.

Expect To Be A Counselor

Of course, it's critical that boomers understand their risks-most notably the risk of outliving their wealth. "I'm hearing more and more from advisors who work with us that they have boomer clients who want to retire early," says Marcia Mantell, a vice president of retirement at Fidelity. "That can be tough because the answer isn't always yes. It's up to the advisor to try to bring a holistic approach to the table so that client goals and realities are factored in. Maybe the client can work part time or work a few more years or both, if that's necessary, but they need to hear that from the advisor."
    What the client really needs to understand is how well all the pieces of their retirement income and financial plan work together, says Schwab's vice president of financial planning Rande Spiegelman. "It will be the advisor's job to make sure that clients have money in retirement, for the entire time they're retired, so they're able to take income in a well-planned, well-thought-out manner.
    "The well-equipped advisor is going to be able to discuss the comprehensive needs of clients, beyond investment performance," Spiegelman adds. One way to figure out what clients need is to ask them. Use surveys and annual meetings to ferret out what they need and want. Many are already grappling with the issues related to caring for aging parents, so they'll be good resources in terms of current and coming needs.

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