Some of the most challenging clients to help transition into retirement are business owners or career professionals who have had some success managing their own money during their working years. Typically smart, independent and well read, they can be their own worst enemies when it comes to investing. Many view investing for retirement as merely a continuation of what they have been doing. They fail to recognize the need for their assets to generate a predictable income stream for an extended period, a time when replicating lost principal is no longer possible.
These are highly independent people who often feel their professional success translates into financial acumen. Since they were smart enough to earn it, they should be capable of managing it through retirement, or so they believe. Their greatest vulnerability in retirement is often the same trait that helped make them so successful in business: their ability to solve problems. They see themselves as able to deal with any contingency because they have been doing so throughout their working years. In my experience, many who believe they are sailing into a financially secure retirement are unaware they may have holes in their keel.
The business usually comes first for these people. The business takes precedence over everything else, and typically long hours make it difficult for them to find time for what appear to be less-pressing matters, including investment management. Their enterprise may generate so much income that investing for retirement becomes an afterthought. It's not that they regard it as unimportant, but they assume they have plenty of assets to take care of the future, and meanwhile they have a business to run.
It takes patience and diplomacy to convince these people to take a hard look at their future.
Besides the difficulty of giving you their time and attention, it may also be tough for them to cede control of their asset management, even to an advisor with credentials and experience. They must be convinced that investing for retirement is a different ball game, with little margin for error. The psychological adjustment they need to make to give up some control in exchange for professional guidance and a seasoned investment perspective can be a big hurdle for advisors to overcome.
Value Is Critical
In working with business owners and entrepreneurs, I've learned you can't gain their confidence with generic solutions or investment platitudes. Street smart, they've heard all the conventional pitches for managing their money: "Mr. Business Owner, I'll bring you all these great investment ideas, handle your asset allocation, give you great diversification and manage your money so you can relax, tend to your business and look forward to a comfortable retirement." Or, "Mr. Business Owner, you're handling your investments all wrong and you're paying too many fees inside your 401(k) and brokerage accounts."
Everybody is chasing these people to manage their money. They can see right through hackneyed proposals and won't pay an advisory fee because they don't see real value. They can manage their own money online, get the same results and pocket the advisory fees. At least, they think they can, and as long as they believe it, they're not going to pay an advisor.
You have to "shower them with value" by offering solutions that are specific to their situation and you have to offer that value on multiple levels. You have to bring something of greater substance and sophistication to the table, something that gives them a reason to listen to you. What they will listen to-and ultimately pay for-is a retirement strategy that adds so much value they will ultimately relinquish control because they see you providing insight they can't. A trust relationship is established because you have given them value, not bromides.
Lack Of Cohesion
Consider a married couple that we worked with. Before our relationship started, the couple owned a small but profitable manufacturing business and had planned to retire in a few years. They had accumulated a substantial nest egg and a variety of advisors as well: a broker, a business advisor and two CPAs, one who handled their personal affairs, the other who advised them on more complicated business issues. Despite the cadre of advisors, the couple took pride in making their own investment decisions, although the busy enterprise left them little time for thorough investment research. As a result, they had no cohesive strategy for acquiring assets to provide retirement income. Instead, the couple chose investments based on instinct, that is to say, haphazardly.
Aside from the value of their business, their principal assets targeted for retirement were in a 401(k) plan that their broker helped set up and manage, plus an olive farm in a neighboring county that they had purchased as a "fun" retirement business. It's the same thinking that causes people to buy wineries or country inns as a retirement investment. The business CPA advised them to move forward with the farm purchase to take advantage of the associated agricultural tax breaks.
Between the business, the 401(k) and their olive farm, the couple thought they had a fairly comprehensive and diverse retirement strategy. In short, they thought they were in good shape.