Investors with retirement heavy on their minds are ditching their brokers in increasing numbers to work with the likes of young investment advisor Troy G. Hammond and his two partners, who manage a fast-growing firm of $500 million-almost all of it in retirement assets. Hammond, the 39-year-old president of AmeriFlex Financial Services in Santa Barbara, Calif., attributes his booming business to the fact that he has branded himself "a retirement income specialist."
His success, Hammond says, is a byproduct of the fact that most brokers and advisors simply don't discuss investors' retirement needs or desires with them in a timely fashion. "Almost every client we get tells me the exact same thing: 'My advisor never mentioned my retirement,'" Hammond says. "We'll get calls from investors who say, 'My broker hasn't called me in five years. Can you help me with my rollover IRA?' It just blows me away."
Does it blow you away, too?
What is increasingly apparent is that advisors who believe clients can read their minds when it comes to their retirement services may be in for a nasty surprise. Unless you're branding yourself a retirement income planning specialist and it's clear in clients' minds you're going to do retirement income planning for them, your client relationships honestly may be in peril.
How do I know? Because four out of five investors switch advisors or add a new one in the 15 years before they retire, according to a new report for advisors from Fidelity Investments. "It's clear that investors are looking for someone to discuss their retirement with them ten to 15 years out, and if their current advisor doesn't do it, they'll find someone who does," says Dave Liebrock, executive vice president of Fidelity Investments Institutional Services Company.
While so many advisors I know are fantastic at holistic planning, the question Liebrock and the new Fidelity report pose is this: Are you positioning yourself as a retirement income planning specialist so clients are assured that you're the planner who can see them through retirement, help to ensure their income and maintain their lifestyle, answer their questions and minimize their risks? If you think you can wait until the investor broaches the subject, you're wrong. The same is true about your timeline for reinventing your practice to address the full gamut of retirement services investors say they want.
The lead time advisors once had to build out their retirement practices has shrunk tremendously. Already, 12,000 people are retiring every day and that momentum will continue for the next 17 years, until more than 74 million retirees clear the retirement hurdle. Retirees are already a critical part of advisors' client base. Currently 43% of clients in a typical advisor's book of business are retired or will retire in the next five years, Fidelity found. That number will increase exponentially.
Lee Eisenberg, the former editor of Esquire and author of The Number, a book that asks Americans how much money they need to retire and what will happen if they don't reach their number, told a group of advisors at the Genworth annual conference here in Washington, D.C., in early June that boomers are starved for financial information and advice they can trust.
At stake is $1.5 trillion in retirement plan rollovers that will be up for grabs by 2010-just three years from now. Investors who are 60 and older already have $10 trillion in assets, and that number will rise to $20 trillion by 2012, according to a joint study from the Federal Reserve and Cerulli Associates.
That's a lot of money and people in motion. And it should give everyone with an investment-centric business pause about whether these folks are moving toward or away from you. "We think that advisors who position themselves well are in a great place to win more clients and more client assets. But we also believe that advisors may be vulnerable if they fail to fill investors' needs as the competition for retirement clients intensifies," Fidelity's Liebrock says.
It's not surprising that boomers are fickle when it comes to hiring an advisor and keeping him or her on the payroll. Investors may not know all the right questions to ask, but they know when they get great service and they know when they don't get any at all. And surely they know when their advisor helps them prepare for the next phase of their lives, especially in areas as critical as creating a paycheck.
Which might be why Hammond makes such a great poster boy for doing retirement income planning right. No one gets to become a client at his firm without having a retirement income plan-preferably one that includes retirement income projections. Indeed, the fact that his firm specializes in "strategic income planning" and "retirement income planning" headline AmeriFlex's Web site and marketing materials.
"We build out a plan for everyone. It's a mandate. We won't take you on without doing a plan," Hammond says. "When we start asking questions and say, 'What are you most concerned with?' most investors say, 'We're worried about running out of money.' It's up to us to build a plan that doesn't allow that to happen.
"When you do that," Hammond says, "you see the relief on their face. This is just one piece of a bigger piece of the financial plan, including estate planning. But it's the most essential piece-ensuring they have the money they need to live before they collect that last paycheck. We like to start planning with them about ten years before retirement. If you wait, you run the risk of surprises."
Which is why it's important to start building out products and services-chief among them the ability to provide retirement planning services-right now. Seven out of ten investors believe that a retirement income plan is "very" or "extremely" important, and 50% of them expected to hire a financial advisor to obtain such a plan, according to the new Fidelity report, Adapting a Practice for Retirement Income Planning.
Advisors offering retirement income services, like Hammond, a member of Fidelity's Retirement Leadership Council, are already reaping the rewards, Liebrock says. Advisors who build retirement income plans for investors improve client satisfaction 50%, Fidelity found. Just as fascinating: Income planning results in far greater asset consolidation among clients. More than 77% of investors would be willing to move all their assets to one advisor, if he or she provides the right mix of retirement services and products. Retirement income professionals also get more referrals. Some 95% of investors who are very satisfied with their advisor's income planning services would refer someone to the advisor.
The time is now to get out in front and start thinking about all the ways your business needs to change to accommodate retiring clients.
One of the best ways to ensure that clients know what you can do for them is to brand yourself as a retirement specialist. That means being able to answer all of the basic questions about retirement, Social Security and even long-term care provisions-areas investors indicate they have great interest in, but little knowledge of.
You can use all your correspondence, business cards, and letterhead, as well as your Web site and newsletter, to establish a successful retirement brand. It's also a good idea to craft a retirement-based "elevator speech" that outlines all the retirement services you provide-while asking a few probing questions about how clients and prospects believe they'll fare in retirement.
And of course, introduce actual retirement income planning to your practice, complete with an asset allocation plan and projections that detail suggestions for funding essential and discretionary expenses.
"We believe in the strategy of helping people start to get ready even a decade out from retirement," Hammond says. "We call it retirement preparation planning. The ideal time is about a decade before you take your last paycheck. If you plan properly, you won't be so stressed out."
This strategy will also help advisors sidestep competition, which is coming, believe it or not.
Mutual fund companies, insurers and other plan vendors aren't going to let 401(k) participants roll over their lump sums without a fight. These vendors are already building low-cost variable annuity products that can take the place of a retiree's pension, guarantee a minimum return of, say, 5%, and provide all the upside potential of an investment portfolio.
Hammond agrees that 401(k) vendors are going to do everything they can to keep more and more people in the fold at retirement by offering them pension replacement products.
"That's why our business model is capturing these people ten years before they leave their employer," Hammond says. "Our sweet spot client is 45 to 60-those who are just beginning to see the finish line."
What's clear is that the changing landscape may quickly separate those advisors who are adding value from those who aren't. The rewards will go to advisors who are working with clients and building out retirement income plans early-those who can clearly and convincingly answer when a prospect asks: "So, what can you do that this rollover annuity can't?"