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Retirement Planning > Retirement Investing

Opening Up Retirement Vistas

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Advisors will need to expand their dialogue with retiring boomers

As boomers retire, an “unwinding” will occur: families disperse, careers end or change, businesses are sold or passed on, and residential real estate is re-deployed or liquidated. Estimates of money in motion surrounding the entry of the baby boomers into retirement range from $6 trillion to $11 trillion.

This will require reps to have a different kind of conversation with clients than before. Previously, reps concentrated on helping clients accumulate more wealth, faster. The focus was on ‘performance’ and making money. Now, rep and client will enter a time of surveying all client resources, risks and lifestyle trade-off decisions to make–for the rest of the client’s life. Clients will be grappling with unique, personal questions such as those in the box.

The simple dialogue about performance is no longer sufficient, but the opportunity to gain “share of wallet” is substantial.

To stake out their position, reps can employ 4 levels of retirement strategies, following what my firm calls the Retirement Market Map. Many boomers currently are looking for services at Level 2, according to our consumer research. But as retirement nears, their desired level of service should ratchet up. How reps can position services along this continuum follows.

Level 1: Product Strategy. The transition from accumulation products to retirement income products tends to be relatively straightforward. During the accumulation phase, reps can readily identify their markets based on fairly simple measures of income, wealth, age and geography. They target their product strategies accordingly–something well within the experience and proficiencies of all successful reps.

This level also offers the easiest and most direct starting point for retirement planning. Some accumulation instruments can readily be converted into distribution products (e.g., annuitization of a deferred annuity, laddering maturities in a bond portfolio, etc.). Reps who operate at this level already have the advantage of familiarity and proficiency with such sales. The client dialogue is simple and limited to product benefits and performance.

Although direct, this approach can only address part of the client’s needs. That leaves the field open to other advisors.

Level 2: Retirement Income Strategy. As individuals approach retirement, they come to understand that the simple calculation–X assets, drawn down at Y rate, will last Z years–is less than satisfactory. The rep can then take the dialogue up a notch and discuss a retirement income strategy.

This entails reviewing multiple investment and insurance products, portfolios, income streams, and expected expenditures, and then matching income sources and anticipated expenditures to learn what strategies can work. The 2 most significant controllable variables–working longer and adjusting expenditures to meet income–can be incorporated in a retirement income strategy. Understandably, the dialogue may be highly personal and occasionally emotional.

Few reps are able to support a broad, “comprehensive” approach to retirement income strategies. Those who are take a planning and budgeting approach, and spend significant time and resources on each client on an ongoing basis, consequently targeting relatively affluent individuals.

Level 3: Retirement Financial Strategy. Individuals at Level 2 (i.e., having a retirement income strategy) will be prepared to discuss a retirement financial strategy. Income is only part of the equation and risk management is another.

Risks come in many forms, depending on composition and complexity of client wealth and income. Solutions can cut across many financial disciplines including investment, insurance, legal, tax, real estate and business succession advice.

Discussing these things steps up the quality and complexity of the dialogue, which now moves beyond investments and income. This requires an integrated approach to managing wealth and risk across all asset and liability classes, and planning for a variety of outcomes over extended periods.

Still fewer advisors or their practices offer comprehensive help at this level. Those who do are often associated with planning and advisory boutiques or trust companies that, with the support of a network of strategic alliances, can currently conduct such dialogue. It requires technical proficiency across all financial disciplines.

Level 4: Total Retirement Strategy. Finally, the most holistic dialogue is about the total retirement strategy. This strategy extends beyond investment, financial, and risk management to include lifestyle, housing and health management strategies.

A total retirement strategy addresses lifestyle issues across all phases and life events of retirement. Initially, it may entail career counseling to focus on the trade-offs between semi-retirement, starting another career, or travel and hobbies. Later, it may encompass health care management and gerontology alternatives. A truly holistic approach helps retirees with understanding, selecting and implementing lifestyle alternatives within the context of the client’s specific situation.

Needless to say, dialogue at this level is highly personal and requires a significant commitment to be effective with each client. It also requires ready access to more than the traditional financial skill sets.

Ultimately, all retirees develop a total retirement strategy, by design or by default. The question for advisors is, “What kind of dialogue do I want to have with my clients?” Will it be a simple one, running the risk that I will be supplanted by another competitor? Will it be a comprehensive dialogue that folds in all facets of retirement, running the risk of being too expensive? Or, is it somewhere in between?

For reps, each level of dialogue entails different revenue and expense parameters, and ultimately may affect an advisor’s business model. Success at each level requires access to different capabilities and expertise. However, since insurers, brokerage firms and banks now are competing and experimenting at all levels, advisors who know the dialogue they want to have will find abundant opportunities to bring all the pieces together.

Just as individuals need to review the resources and risks they face to make trade-offs in planning for retirement, advisors need to take stock of their capabilities and make conscious decisions on how, and at what level, they want to address the retirement market.

J. Heywood E. Sloane is a principal at Diversified Services Group, Inc., Wayne, Pa. His e-mail address is [email protected].

Each level of dialogue entails different revenue and expense parameters, and may affect an advisor’s business model

On The Threshold

What Boomers Will Be Asking

==What to do with my wealth, my property and my life now?

==Do I retire, semi-retire, start a new career and when?

==How much income do I need, and where does it come from?

==How can I contain health risks, over the next 20 to 30 years?

==Am I financially secure and how long will that continue?

==Should I pass anything on to my children; if so, why, how and how much?

==Where do I go for answers?

Source: J. Heywood Sloane, Diversified Services Group, Inc.


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