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.