On the third anniversary of the start of the Covid-19 pandemic, I’m reflecting on how our world has changed and what that means for the future of financial advice.
1. Planning for retirement is fundamental. Plans, though, must be fluid. Financial planning is the backbone of a client relationship. But as we learned during Covid-19, only some things go according to plan.
Millions retired early as retirement accounts swelled. Then inflation struck. The market slid. Many trimmed expenses and tempered lifestyles. Many returned to work. Lives and perspectives altered. And we all need to be ready as change will continue relentlessly.
My conversations with those in or near retirement and the experts advising them underscore the vital need to work with clients to manage all aspects of retirement, not just portfolios. Investors wonder:
• How will I deal with healthcare costs, and who can I turn to?
• Will I outlive my savings?
• Will I be able to help family members who need financial support?
• What will I leave my children and grandchildren?
Some can’t articulate their worries. Others avoid the topic. They need your help sorting it out, as Ken Dychtwald told me in a recent interview for my podcast and article. Think of the plan as the basis for all client conversation about what matters to them.
And here’s the critical question…
2. “What is the purpose of your wealth?” Michael Liersch, who heads advice and planning at Wells Fargo, worked with John Thiel and Riley Etheridge at Merrill, where they encouraged advisors to ask clients: “What is the purpose of your wealth?”
Liersch has a doctorate in cognitive psychology, taught behavioral finance at the NYU Stern School of Business, and built programs and tools at Merrill and JP Morgan. Today at Wells Fargo, he leads a team that just rolled out LifeSync, which I consider an industry breakthrough.
LifeSync is an advisor/client collaboration tool available through the Wells Fargo mobile app. It addresses what matters most to clients. Listen to Liersch describe LifeSync and its future on my podcast.
Edward Jones is also investing in tech and training to shift the dynamics of client-advisor relationships. Jones hired Dychtwald—psychologist, gerontologist and best-selling author—to lead extensive research into “the new retirement.”
Respondents said money is only part of what they think about. Having a purpose in life, maintaining their health, and taking care of their family steer their financial decisions. Ken Cella, who leads the Edward Jones branch system, said that insight inspires the firm’s strategy and transformation.
3. Control what you can. You can control taxes (and not much else). Taxes, healthcare and securing a retirement paycheck are what clients want their advisors to help them figure out, Chip Roame, Tiburon Strategic Advisors managing partner, told the Tiburon CEO Summit last fall.
Taxes are the most considerable and controllable expense in retirement. Clients will look elsewhere if their portfolios aren’t performing and you can’t minimize their taxes.
There are many strategies to achieve tax alpha. Tax loss harvesting is a start. Transitions and direct indexing are good entry points. Asset location has the most impact on accumulating and withdrawing money in retirement.
My colleague Paul Samuelson points out the value of asset location accelerates as clients age, earn larger incomes, and the impact of compounding kicks in.
When it’s time to convert assets into income, clients want to maximize their retirement paycheck (like waiting until age 70 to collect Social Security benefits) and minimize taxes through: asset location, multi-account rebalancing, long-term gain deferral, tax-loss harvesting, equivalent assets and using IRA withdrawals to fund Roth conversions.
Last month, Cerulli Associates said more advisors are moving toward a unified managed household approach with tax reporting and performance front and center. Some lead the way, while others try to figure out how to play in the all important tax alpha arena.
4. Clients want you and your advice. Covid-19 increased the demand for personal financial advice. Empower CEO Ed Murphy described the trend as an “insatiable appetite for advice (that) is unabated.”
Everyone I speak with agrees: Advisors won’t be replaced with AI or robots. The U.S. Bureau of Labor Statistics predicts employment of financial advisors will grow 15% from 2021 to 2031, much faster than for all occupations it tracks.
People crave the human touch, someone with empathy and knowledge who will listen to what clients want their money to achieve. Even when technology is doing the heavy lifting, they want an advisor to explain how and why and help determine priorities.
Forme Financial is an intriguing study in personalizing advice for a specific audience—residents, fellows and practicing physicians. Its chief wealth officer, Bill Martin, told me they built a state-of-the-art engine through powerful tech partnerships with Orion, MoneyGuide and LifeYield.
Liersch explained, Wells Fargo’s LifeSync creates “collaborative, fluid, normalized conversations about money. When you provide true advice, really understand what that person is trying to accomplish, it leads to specific ideas” about investing strategy and more.
5. Comprehensive wealth management leads to the best outcomes—for all. Our industry has a habit of applying products as a panacea. It reached its peak during Covid. Millions of investors flocked to online trading platforms like Robinhood. There was the meme stock frenzy. And crypto showed the danger of relying on a single idea, however revolutionary.
Over the years, I’ve witnessed—and promoted—an endless stream of products, each purported to be better than the last.
While most products are good, no product achieves all of anyone’s goals. Stock market swoons, inflation, tax legislation, and, yes, pandemics happen.
As Paul Samuelson reminds us, history teaches us if we listen. The work of his father, Nobel laureate Paul A. Samuelson, inspired Vanguard founder John Bogle. Their thinking has withstood the test of time and should inform the guidance you provide to clients:
• Don’t time the market. Stick with your plan, even when things get rough.
• Don’t hold concentrated positions, including in your own company or employer.
• Pay as few taxes as legally possible and look at your portfolio holistically.
Follow this advice, and use all the levers available—investment choice, tax-smart asset location, asset allocation and rebalancing, trades and withdrawals, required minimum distribution (RMD) management and Roth conversions—to generate the best outcomes. For clients. For advisors. For firms.
Jack Sharry co-chairs MMI's Digital Advice Community, is on the Next Chapter Executive Leadership Advisory Board and co-chairs Next Chapter Innovation Leadership in Action. He hosts the WealthTech on Deck podcast and is executive vice president at LifeYield.