I’ve spent the last four decades on the front lines of the future of financial advice. I started when interest rates were sky high in the early ‘80s. And I worked with many to encourage trillions of dollars to flow from money markets into stock and bond mutual funds as rates fell. I’ve been called a pioneer in the advisory space; and the annuity business, too, as trillions more flowed to these vehicles. I’ve seen a few “greatest bull markets of all time,” a few stock and bond market crashes, a tech bubble and a Great Recession. I’ve witnessed inflation, deflation, disinflation, stagflation, malaise, expansion, contraction, recovery and a pandemic. I’ve been around as long as retail investing has been the phenomenon we know and love it to be.
Now, I spend my time on the confluence of human and digital advice. Every day I collaborate on Zoom with the most innovative architects and builders of fintech tools and platforms that enable advisors to improve investor outcomes, and their own.
I watched the rise and fall of the “Blockbuster Video” era of our business, where we sold individual products in different accounts for accumulation and commissions. Now, we’ve entered the “Netflix” era of financial advice.
The Netflix era looks like this: coordinated, household-level, multi-account and product management. Increasingly, this will be conducted during accumulation by cost-smart, risk-smart, tax-smart portfolio management and rebalancing. This will be followed by the optimal sequence of withdrawals across multiple accounts, products and income sources, including pensions, annuities and Social Security. Thanks to algorithms and smart tech, we will be highly proficient in helping clients improve their results.
In other words, the Netflix era looks like household portfolio management, or “householding” for short.
Why? Because trying to beat the market doesn’t work. Is there anyone left who thinks they can? Instead, the smart money has flowed into better control of the only levers that can truly and reliably improve investor outcomes:
• Reduce costs
• Manage risk
• Minimize taxes
• Maximize Social Security
It’s a lot easier said than done. Managing this complexity requires coordination of various optimizing software capabilities that are simple, graphic and user friendly.
• Talking the talk about financial planning, asset allocation, tax, risk and portfolio management is giving way to walking the walk of coordinated implementation; including quantifying, executing and delivering improved outcomes.
• Advisors can only help investors achieve improved outcomes by moving from saying it to doing it—known as “next best action”—the next best thing to do to improve results.
• To determine each next best action, we need to quantify and prioritize those steps through software—like Trivago does pricing for travel.
• Advisors and firms who get this will benefit from improved outcomes, happier clients, increased revenues, practice efficiency, more referrals and fewer compliance headaches.
This is how we fully embrace the Netlix era of coordinated, multi-account household management.
Ernst & Young found when all the above is done, after-tax returns and income improve by 33% over an investor’s lifetime. That’s why so many firms are pursuing householding. They’re trying to figure out how to coordinate and optimize all of these moving parts.