From the July 2007 issue of Boomer Market Advisor • Subscribe!

July 1, 2007

The advisor voice - Are you process-driven or product-centric?

Mass affluent boomers want customized, objective advice that's simple and easy to understand, especially when it comes to planning for retirement income distribution. Furthermore, boomers intuitively want solutions to be tailored to their needs vs. being sold on why they should purchase a particular investment product. This is where most of the financial services industry misses the mark.

Manufacturers traditionally distribute products through a wholesaling force that focuses on the features and benefits of their products in order to gain shelf space with broker/dealers. Consequently, most retail advisors use this product-centric approach when working with clients by providing product solutions instead of a process-driven
approach. This creates resistance rather that a collaborative counseling process.

While there are some process-driven approaches for accumulation and transfer of wealth in the high-net-worth marketplace, the mass affluent American is underserved. During my first 20 years as an advisor, I sold investments in the employer qualified market to boomers who were saving for retirement. As they drew closer to retirement many said, "You have done a great job of helping me save and invest, but now what do we do?" I soon realized that I needed to create an objective, analytical process for income distribution, one easily understood.

The first step was to create a way to categorize expenses to link to potential income sources. The challenge was keeping it simple. Since I have always believed that a picture is worth a thousand words, I wanted the process to be image based. The result was a pyramid matrix that divided expenses into four categories: core, joy, goals and legacy.

Core expenses -- Core expenses last forever and are comprised of what we call the big six: food, clothing, housing, transportation, insurance and taxes. They must be satisfied in order to maintain independence, economic freedom and dignity during retirement. Consequently, they must be linked with income sources that cannot be outlived, such as Social Security, defined benefit pensions or personal pension annuities.

Joy expenses -- These include, but are not limited to, hobbies, entertainment and travel. While we all want the maximum amount of fun in retirement, most of us can tolerate a fluctuation in the amount of joy income we may have in a particular year. We link these expenses to income sources generated from dividends and interest
income from existing investments.

Goals -- Goals refer to our aspirations, such as a second home, a boat or college expenses for grandchildren. Typically, they're linked to the liquidation of existing assets like home equity, savings and other assets.

Legacy -- Legacy refers to accumulated assets that are to be left to heirs and charitable organizations. They're funded with the remaining assets and insurance proceeds.

In addition, we use graphic and imagebased software programs to provide further analysis and "what-if" scenarios which are client-driven and customized. The result is an objective, process-driven approach leading to product solutions that are embraced and owned by the client.

We find this approach resonates with our clients in today's information-overloaded environment and helps them create a new and more structured plan for proper income distribution.

Broker/dealers, in particular, would do well to invest in a process-driven approach. Middle-class boomers want and need objective income distribution planning. Advisors need tools and training. The edge will go to those who provide it in a simple but effective way.

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