As several smart behavioral experts have said, human brains do not naturally process abstract, long-term planning. But we all love short-term comfort, and advisors need to offer some of it. Sometimes it is OK to add some mac and cheese or dessert to the healthy table. It doesn’t mean you’re promoting chocolate cake instead of a stuffed turkey.
There’s been enough research showing the value of certain annuity products in retirement. Other income solutions are also available. But this article is not about solving that problem in a left-brained way. I’m talking about connecting with clients in a very human way.
Annuities face criticism, but some of that is based on folklore from long ago. Anyone lamenting the products’ “high cost” should apply the same test to most alternative investments. Or to “no load” mutual funds, with their 4% back-end cost, or their forebears, whose cost was 8.5% up front. Demand drives innovation that results in better solutions. That innovation has been taking place in the income product world for years—and there’s more room to run. Check it out.
It is simply ridiculous to turn a blind eye to an entire category of potential investment solutions that can give value—peace of mind—to a generation of investors who have earned our respect by supporting us for decades. Especially if there are solutions that can leverage limited assets—something that’s true for most clients. Such strategies will appeal to both their brains and their emotions and finally acknowledge that their peace of mind is a valued objective. If we insist instead on promoting what we think is “good for you” over what people say they want, without regard for alternatives, we will drive away our core clientele when a disruptor offers what they want—and it works. Consider the impact of target-date funds as the retirement plan default in lieu of guaranteed interest accounts.
We are watching a new role emerge in the retirement advice marketplace. Let’s call them “Next Chapter advisors,” people who specialize in helping individuals and their families fund that next stage of life. They are often in the same phases of life with their retiring clients, so they can use their own expertise with accumulation and investing. But now they can focus—on now. That’s a different mindset that requires an empathy clients will embrace. These advisors will use planning and products for multiple objectives and help families prepare for those inevitable things that happen in life.
So get everyone to the family retirement table and pass the calamari. Who cares if it’s really squid?
Steve Gresham is on a mission to improve “retirement.” He is CEO of the consulting firm the Execution Project LLC and leads Next Chapter, an active think tank of 50-plus leading financial companies. He is also the senior educational advisor to the Alliance for Lifetime Income.