From the November 2008 issue of Boomer Market Advisor • Subscribe!

The boomer benefits of true financial planning

Put five skilled, seasoned financial advisors around a table, ask them to speak their minds on a range of hot-button subjects related to financial planning, and the discussion is bound to be lively -- and informative.

That's precisely what Ameriprise Financial did this summer at its headquarters in Minneapolis, and the resulting roundtable discussion did not disappoint. From an engaging dialogue about the meaning and merits of true financial planning and a revealing exchange about the importance of putting process before product, to more pointed explorations of strategies to address the income and longevity issues facing baby boomer clients, the panelists (Brian Gerhardson, Renee Hanson, Jim Lund, Jim Barnash and David Tysk) were clearly on top of their game.

Here's how the discussion, moderated by BMA writer David Port, unfolded:

David Port: How do you define true financial planning?
Jim Barnash: It's a combination of science and art. The science is the numbers and the art is the conversation, the listening and the building of a relationship between an advisor and client, which helps to really deliver a greater comfort and a greater interaction with the client to help them achieve their goals and dreams. Ameriprise believes it all has to be part of a written plan covering most of the seven elements of financial planning, as defined by the CFP Board of Standards.

Renee Hanson: It's about achieving your life goals through an ongoing relationship whereby you apply the principles, or process, of financial planning to allow people to make their decisions. Too often, when we look at asset management, people put the dollar in the center of their lives and let their lives revolve around it. What we do is put their lives in the center and let the money revolve around that. That's where life satisfaction comes from.

Jim Lund: We really are planning for people -- for families. All planners should be doing intergenerational planning, starting right now. We want to lead with the client's goals and make sure we're on track to meet those goals. Asset management is just a means to the end. It is not the end.

Port: Why is financial planning important and, more specifically, why should it be about process versus simply about the product?
Lund: Too often, advisors are guilty of talking with the client about this being an event. It's not an event. It's their lifetime. It's beyond their lifetime. It's something that's going to continue to grow and change organically.

Hanson: Boomers have said loud and clear, over and over, they don't want to be sold a product. That message is clear.

Barnash: If you do true planning, and you do it in a comprehensive fashion, what happens is that the plan itself raises the red flags and says, "Here's where you need help." You don't have to sell anymore. It takes care of itself. I think advisors who lead with the product are missing a lot of opportunities to help the client and actually put more products in place.

Port: Given the current market environment, anxiety is a significant reality with many clients. What role does true financial planning play in keeping clients informed? How does it alleviate their anxiety and keep them focused on the plan rather than on chasing performance?
Lund: I think it's a good news/bad news story. The portfolio might be down with the market. But that's not the big story. The big story is: Even with this down market, are we still on track?

Barnash: We know statistically from recent studies conducted by FPA, Ameriprise and Harris Interactive that people who have a written, comprehensive financial plan definitely show less stress; they're more than twice as confident as those who don't have a written plan that they will still be able to achieve their goals, even in this down economic environment.

Hanson: It goes back to the comprehensive ongoing relationship that we have with our clients. Having this educational process through an ongoing relationship allows people to understand that there will be ups and downs in a market, and this happens to be one of the downs. What clients want to know is how this is going to impact their goals. When we have that conversation with them, they know what decisions they may need to make to adjust, if any.

Port: In a heavily results-oriented business, how do you see true financial planning improving the client experience?
David Tysk: Clearly, a client who has goals and dreams and things they're working for feel much more comfortable having a blueprint or a plan in place.

Hanson: Three out of four boomers feel the economy is on the wrong track, and they also feel recovery is one to two years away. But those who are in a true financial planning advice relationship find a 50-percent greater satisfaction compared to those who are not, at 29 percent. Clearly, people in a true financial planning relationship find themselves in control and very comfortable with their direction.

Lund: A while back, I surveyed my clients to find out how important goal tracking is to them. On a scale from one to 10, they all came back 10, "Goal tracking is absolutely important to me." The follow-up question was: "How much are you willing to pay for goal tracking?" Just about everybody said "zero," which I thought was really interesting. So, you want to know where you are in relation to your goal achievement, but you don't want to pay for that. What I chose to do is to take a leadership role and say, "I actually think knowing if you're on track to meet your goals is important enough for you to want to pay for it." So we started charging for it and put them on annual financial advice fees, and now I have happier clients. I've been doing this for 23 years, and I can't remember a time when we have been in a downturn where I have had happier clients because they're comfortable about goal achievement.

Port: How does a multidisciplinary approach to true financial planning relate to, and incorporate, specific niche areas of financial planning, such as estate planning, retirement planning, tax planning and the like?
Hanson: True financial planning looks at all those. So often people will look at piecemeal planning. For example, if cash flow is an issue, they may decide not to pay their insurance premiums anymore. Well, then you have impacted protection planning. If they stopped paying their insurance and there's a bump in the road -- a death or disability -- how are they going to achieve their other goals? True financial planning ties it all together.

Barnash: Studies show that people with a written, comprehensive financial plan are more than twice as likely to have their estate plan completed, to have their life and long term care insurance issues covered, etc.

Tysk: There are hidden benefits to planning that my clients don't realize when we start working together, and estate planning is one of them. What happens is, we start talking about their investments; we start talking about retirement; we talk about their kids' college, and we have a conversation about estate planning, and we find out that they don't have a trust set up for their children. We find out they don't have beneficiaries properly set up on their life insurance; we find out they don't have a power of attorney that they need. Then these things get on our to-do list. Sometimes it takes two or three years to check them off the list. But that's one of the things that gives people more confidence, knowing that it's not just about the rate of return, but it's about crossing T's, dotting I's and making the best decisions you can for your family.

Port: Dr. Ken Dychtwald and other gerontologists no longer define retirement as simply a short period of rest after a lifetime of work. Given longevity and advances in medicine, retirement assets are going to need to last 30 years or 40 years. How does true financial planning address the longevity and income concerns the boomer generation is facing?
Hanson: Isn't it interesting to find that when we have time, we don't have money and when we have money, we recognize we don't have time. That's where it all comes together with getting older and living longer, helping people understand how to manage now that they have the money, for whatever time they have left.
It's disconcerting to me that someone is fearful of living too long. Why should it be that way? If we can give people the confidence and comfort in their financial situations so they know they have the means to make it through retirement, that's the true value of a financial advisor relationship.

Barnash: I think what's important is the educational component. What people need to understand are the risks they will face in retirement. I worked with clients a few years ago, and we had a conversation around long term care insurance. People like to push that off because it's not an inexpensive product. But we made the decision, through the planning process, that it was an important thing to do. Unfortunately, they both ended up using the long term care insurance. The husband went into claim first, and every time I had a conversation with his wife after that, she would say, "Thank you, thank you. I would have run out of money had we not had that insurance in place."

Port: You mention long term care. How does true financial planning address the different stages of retirement and help clients adjust for unexpected events that arise as they age?
Tysk: Fundamentally, not much changes with the advice we give clients when they are between the ages of 59 and 63. It's the emotions they go through during that time that make it such a monumental event. They're thinking they can't afford to make a mistake because they don't get to undo it. They don't get to leave their job and say, six months later or 18 months later, "I'm ready to come back now; retirement wasn't what I thought." It's dealing with those kinds of emotions that they really need our help with. It's a fundamental discipline that we should have as financial advisors to help them navigate through that and make the best decisions they can.

Port: We've touched on the challenges that come with the distribution or "decumulation" phase of a client's life. How does true financial planning effectively assist clients in drawing down accumulated assets?
Brian Gerhardson: Usually we're engaged in people's lives well before they actually retire, so we should already be having a conversation with them about priorities when it comes to generating income. Where's the money going to come from? They should already be thinking about the question, aware that there's a practical, intelligent way to create an income stream for retirement.
Hanson: You said it well -- intelligent distribution or intelligent decumulation. The decumulation phase isn't just the living part -- the income stream. There's a legacy aspect to it, too. For many boomers, getting their arms around the fact that they may retire with millions of dollars is a little overwhelming. The true financial planning process helps us shape the decumulation phase of their lives. Not only is it an income stream, but it's a legacy as well.
Barnash: It's just as important for people who may not get to that $1 million or $2 million mark, where true financial planning helps them better understand what they can and can't do in their retirement years.

Port: How does true financial planning allow you to build rapport with prospects and clients and, from an assets-under-management perspective, how does it increase the wallet share that you, as an advisor, are able to attract?
Hanson: When you have a trusting advisory relationship, people are interested in having you manage their assets and less inclined to put it piecemeal in different locations, with other advisors. Those who don't have the advice relationship often find they have to compete with other advisors a client might have. A client might have two or three advisors who manage different aspects of a portfolio. Then, whoever is doing the best at some point in time, they may consider moving the money to that advisor. They may even move it back and forth. This is a performance-related investment versus a goal-related relationship. And that's the difference.
Lund: You hit it right on the head. I think we bring in way more assets by having done financial planning than we ever would if we were just doing asset management.

Port: There are a few things we know -- or think we know -- about baby boomers. By and large, they're hungry for information and well educated. But they're also skeptical of people in positions of authority. They want somebody who's an advocate working on their behalf, and don't want to feel like they're being sold. How does the true financial planning process address these sensibilities?
Hanson: True financial planning creates a partnering relationship. It allows clients to maintain control. It also allows them to test out their ideas with a party who will tell them about the potential consequences of their decisions. In that way, financial planning is ideal for the boomer market.
Gerhardson: I struggle with the concept of boomers being skeptical when they come in to see me, or any of us. It feels to me like they're just overwhelmed. They're uncertain. There are all these things they don't know how to capture. So they don't have a sense of comfort about their financial future.
Barnash: What about all those people that aren't coming to see us? They don't trust going to an advisor. Maybe that's because of an element of perceived greed. We've muddied the waters so much that the term "financial planning" really doesn't mean much anymore, because everybody said they were a financial planner, even if they were just doing asset allocation. We have to go back and educate people about that distinction. What we do for clients is connect their dreams, their goals, their emotions -- the art piece to the science. We can do the science as well as anybody, but we also do the art.

Port: The advantages of beginning the saving and planning process at a young age are well documented. But the dismal savings rate that we see today is a significant concern. Is it ever too late to begin the true financial planning process? And how can you, as an advisor, help mitigate the negative impact of waiting too long to begin that process?
Hanson: When a client is young, the toolbox is wide open; every drawer you could open has a usable tool in it. As we get older, some of those drawers are forever locked. The client may not be insurable, or may be too old to implement certain strategies. But you're never too old to make progress. Right up to the day before you die, if you have not established your legacy planning, there's still an opportunity to talk about those choices. I listen to people who say, "Well, you know, retirement's next year; it's too late to start planning." It isn't.
Lund: It reminds me of one of my very first clients. I started working with him when he was 62, and he was absolutely serious about retiring at 62. Through the financial planning process, I was able to help him retire at 68. He had done no planning and only minimal saving when I started working with him, but he was still able to have a retirement, and we protected that retirement with long term care insurance. Now he has Alzheimer's and is getting home healthcare. So you're right, the tools are more limited, but there still are some that can positively affect a person's future.

Port: How does true financial planning mitigate some of the so-called bear market retirement risks that come with retiring in a down market?
Gerhardson: I have a client, Richard, who has been planning to retire in, of all years, this year. And the plan was for him to officially retire in October. We have spent the last several years getting him ready from an asset-allocation standpoint. I'm happy to say he is heading into retirement feeling like he's got all his ducks in order.
Hanson: We understand there's a transition for the client, not only from a financial and emotional point of view, but also in comprehending and understanding the process. So we can model a retirement income stream to give people comfort and confidence that they're going to have fixed income coming into their checking accounts to pay for their dreams, their needs, their legacies. They are also going to have a short-term pool of funds with less volatile assets that won't jeopardize the integrity of their asset allocation. Through proper asset management, there will be rebalancing. There will be dividends that replenish. Once they understand all this, they get confidence, and we execute that. True financial planning allows people to go into a down market and still be able to retire, because we've already assumed that the math will change during retirement. It's built into the plan.

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