What does it mean when so many people retire at once? For most financial advisors, it’s bad news.
One top advisor frames the challenge this way: “Our retired clients are our loss leaders. They have the most assets but their needs for service exceed the revenues they generate. It is a drain on the practice.”
Of course, these loss leaders were cash cows not too long ago. Just a few years ago, as the stock market reached its March 2009 low amid the Great Recession, the median age of the dominant baby boomer client cohort was only 54, which is the peak earnings time for most professionals and business owners. When you piled on the fivefold increase in stock prices they were about to see, your business was likely set to take off like a rocket ship.
But that ride might be over.
Now the median age is 68; the oldest boomers are a pretty senior 77. Next year, more Americans will turn 65 than ever before (we hear from the Alliance for Lifetime Income). And this is just the crest of the wave.
Where There’s Smoke, There’s A Practice On Fire
No advisor wants to warn their management that there’s trouble ahead. They’ll be told they have to work harder.
This is also likely unwelcome news to the owners and financiers who bought into the industry. What if they bought into an advisory firm looking at past numbers and figured they could turn those figures into rosy future projections—without factoring in the increased service costs associated with the clients getting older. This isn’t the NFL. Your current performance matters more than your past performance. These new owners likely haven’t factored in the importance of engaging the next generation of clients so that hard-won, fast-rising assets won’t spill off to other advisors.
What if you had brilliant timing and sold your practice during the meteoric rise of the past few years—but now have to make the earn-out from your buyer when it has become more difficult?
Also consider that your clients are living longer and might stay with your practice decades after they retire. The long-term retired client is very different from the low-maintenance, 50-something who helped you build your firm and, collectively, the industry.
These are just some of the conversations we’re going to be having with the industry’s new owners.
Some Ideas To Get Used To
1. Get used to the idea that your clients are going to live longer, which means you should understand the client’s entire family profile. Spouses, adult children, aging parents—all of these people will factor into your future services. But that also means opportunities to retain your clients and grow your practice. Do we know these other family members? Do we talk to them?
2. You’ll have to focus on client retention. While organic growth from new clientele is generally the measure of business health, it has all but disappeared as the demographic impacts roll over the industry. And if you want to retain aging clients, you must be able to handle their particular challenges. In the October issue of Financial Advisor, I discussed a podcast released by our think tank, Next Chapter, called “Moments that Matter.” In it, we talked about important life events such as someone becoming widowed or divorced, suffering a major health crisis or going through a cognitive impairment, among other things. Most families will experience one or more of the crises we discussed. And our response as financial advisors when our clients confront these problems will be the test of our value to them. We don’t get fired by clients who age. We get fired by their adult children who’ve seen how we treat the parents. Don’t lose G2.
3. You’ll have more clients with more needs and you’ll need more help. The average advisory book was built for clients who are saving and investing, not the ones retiring. Dealing with retired clients is going to be more complicated and more difficult to scale. Each one needs much more time than they needed when they were low-maintenance accumulators. They’re going to start depending on you more like patients depend on their doctors, coming in anytime they’ve seen something on the news and asking you if Ozempic is right for them (or at least long-term-care insurance). You can count on this. And you should accept it. Because you might benefit from it. The research we’ve done at Next Chapter suggests retiring clients and their families are most concerned about three things: their health and healthcare, their guaranteed income and their liquidity. The common thread in those topics is that most advisors don’t talk much about them.
4. You must seal your reputation. Make sure your ideas and your people are visible and credible. Help your clients by having good ideas and making a name for your firm in their minds. They are increasingly seeing the same information about other advisors in the same locations. Be there and be notable—and memorable. If only to break the tie between yourself and competitors.
The New S Curve Is Longevity
Think of the S curve: In project management, this describes a process that starts off slow, suddenly takes off on a steep upward curve, then slows again after that.
Our approach to handling our clients’ longevity could be thought of this way. People’s longer lives are the force that will change us, our clients and our industry. Your response to it will dictate the outcome for you and your company and for the one and possibly two generations of clients who might need your help.
Steve Gresham is the managing principal of Next Chapter, a leadership community dedicated to achieving better retirement outcomes for everyone. He also serves as senior education advisor to the Alliance for Lifetime Income. He was previously the head of Fidelity’s Private Client Group. Steve is the author of The New Advisor for Life (Wiley).