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Life Health > Life Insurance

Into the Future

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Within the next 10 or 15 years there will be a big leap in human longevity that will radically change our society, will greatly affect international relations and the business world, and will also transform the way that advisors conduct their practices and service their clients. Not only will people live longer, those added years will be relatively happy ones, with much less isolation and infirmity than marks many people’s older years today.

Conversations with psychologists and priests and physicians and scientists, along with consideration of demographic data from the Census Bureau and research reported for organizations like the Centers for Disease Control and the World Health Organization, and symposia of demographers and actuaries, lead to a convincing argument that advances in genetics and technology will forever change life expectancy and our experience of old age, at least for the average upper-middle-class to wealthy person living in the developed world–which probably covers most of your clients, and you. People will regularly reach the age of 100 and often surpass it.

The practical implications of the coming leap in longevity are stunning, coming as it does–not coincidentally–just when the 76 million baby boomers reach traditional retirement age. In this, our special issue that celebrates the 25th year of Investment Advisor, it seemed appropriate to look ahead, to lay out the evidence for this massive shift in society and the advisory profession, to explore the advisor business models that seem well suited to prosper in the next 25 years, and to suggest investing vehicles that you can use for your clients in this brave new world. Consider this 25th anniversary special section as a roadmap to the future that provides directions and suggestions for how you can help clients reach their goals, and for you to reach your own.

So what should you be preparing for today to position yourself and your practices better for tomorrow, to keep serving your clients as they begin to live longer, as their retirements change, and as their experience of aging becomes not just more bearable and longer, but more enjoyable?

If it’s a challenge to write an estate plan covering three existing generations, imagine how much more challenging it would be to go out to five or six generations.

If a 4% annual distribution from a retirement plan seems prudent to keep a 65-year-old client from running out of money by age 85, imagine if you added 20 years to her life expectancy, or 30, or 50 years.

I’m sure many of you already go beyond age 85 in writing plans for clients. A. Michael Lipper sold his research firm to Reuters, but he still runs Lipper Advisory Services, an RIA, and he projects out plans for clients to age 120. Ricky Grunden, a fee-only planner in Denton, Texas, not only writes plans for his clients up to age 100, but his firm’s business plan assumes he’ll reach age 100–is that what your plan assumes?

Some people see an aging population and increased longevity and paint a bleak picture of wealthy old white people being kept alive by a combination of technology and poor dark-skinned people, leading to even greater divides within the country and among nations. Others look at the aging populations in Western Europe, North America, and Japan and worry that we will have a rich, old North, and a poor, young South–hardly a prescription for world peace. That scenario is possible, but I believe that the evidence suggests that we are entering a golden age of old age, when most Americans will live much longer and potentially much richer lives.

Why So Long?

Everyone interviewed for this particular story–money managers, economists, the folks who run some of the companies that you do business through, and advisors–was asked for their reaction to this possible leap in longevity. What would they do differently? How would it affect their practices and business plans?

The most common, direct response was a question: “Why would I want to live that long?” That’s because our experience of advanced old age tends to be quite distressing and even depressing. Who wants to live another 20 or 30 years if those years will be spent in a nursing home, cut off from families and friends, in declining physical health and with the specter of diminished mental capacity–of Alzheimer’s and dementia–hovering over us?

The natural end of life will continue to hold some of those fears, and–here’s a news flash–we all will die. But research in everything from nanotechnology to biotechnology suggests that old age will be longer and more enjoyable since we will be able to prevent many of the disabilities that we associate with old age, and treat those disabilities and diseases not only with advanced drugs but with tissues and organs and replacement parts grown from our own stem cells.

Increased longevity won’t mean 30 years of living a depressing life in a nursing home, but it will present opportunities for completely new careers and avocations. It won’t mean a time of depression and isolation, but rather increased years of learning, working for personal fulfillment, and connectedness. The challenge will be to ensure that your clients have the financial resources to not just outlive their money, but to enjoy those extra years that all of us will receive.

Your role could very well be to keep your clients connected to a world of experts who make their homes more livable, who make their lives more comfortable, who can not only provide them with referrals to accountants or estate planning attorneys, for instance, but also guide them through the biggest concern of the baby boomers–the healthcare maze.

The research shows that people who live longer, and who not only live longer but also more happily, are connected to other people–to family and friends, yes, but it’s interesting that even centenarians–those people who’ve outlived their friends and most if not all of the other members of their families, have this “connectedness” in common. These people have lived prudent lives–they tend to have limited their use of alcohol and tobacco and are more likely to be physically active–but their most common trait is continued involvement in society–with spouses, family, friends.

How Did We Get Here?

Life expectancy has increased markedly over the past 100 years (see Life Expectancy below). The drivers of that increase are vastly improved sanitation systems, the discovery of vaccines for common childhood illnesses and infectious diseases, the introduction of antibiotics, the understanding of how environmental factors influence health and promote or retard disease, the great improvements in diagnostic equipment and diet.

So if that’s where we came from and how longevity has increased over the past 100 years, what’s the argument that longevity will not just increase in the slow and methodical linear way that it has over the past 50 years, but make a leap? The biological gerontologists Gavril and Gavrilova of the University of Chicago put it well in a 2004 article: “Many scientists now believe that, for the first time in human history, we have developed a sophisticated enough understanding of the nature of human aging to begin seriously planning ways to defeat it . . . we can be further improved through genetic engineering and be better maintained through preventive, regenerative, and antiaging medicine and by repairing and replacing worn-out body parts.” (September 2004 IEEE Spectrum)

The actuaries in Social Security and the Census Bureau are very conservative when it comes to future lifespans, though many private sector demographers are less sanguine. We don’t honestly know how quickly longevity will increase. But we do know what’s responsible for folks, especially older folks’, deaths now and at least since 1900 in this country, and putting together causes of death with the current focus of biomedical research, we can discern some trends that lead us to suggest that a leap will soon occur.

Looking at the list in the Causes of Death (see chart below), notice that only one of the top three causes of death in 1900 remained a leading cause by 2000. These are the diseases that the great medical advances of the 20th century helped tame.

According to the Centers for Disease Control, in 1900, 30.4% of all deaths occurred among children under age 5; in 1997, that percentage was only 1.4%. Those three leading causes of death, and diphtheria, caused one third of all deaths in 1900.

Looking at the causes of death in another way in the chart above, notice how the death rates for heart disease, stroke, and pneumonia and flu dropped significantly from 1950 to 2000. Heart disease death rates have decreased because of improvements in diet, exercise, decreases in smoking rates, and through the use of drugs, especially statins, and better diagnosis and treatment of heart disease.

The combination of improvements in infectious disease prevention and treatment and the procreative frenzy that followed World War II will lead us into a new demographic universe over the next few decades. One hundred years ago, looked at graphically, the population had a pyramid shape–plenty of young people on the bottom supporting a much smaller older generation. Now the shape of the population is moving toward a rectangular one, where the population of young, middle-aged, and old is roughly the same. Other developed nations–notably Japan, German, and Italy–are ahead of us here. The birth rate in those countries is lower than ours, and their culture and politics keep the numbers of immigrants down, resulting in a much more rapidly aging population than we face here. It’s no coincidence that big cultural changes are already being seen in those countries, including a reassessment of the social welfare state approach.

Evidence for the Leap

How will this leap in longevity come about? Through prevention, diagnosis, and treatment, the three pillars of medical treatment that we’ve followed in the developed world for more than a century. But there’s something new going on that is likely to match the great increase in longevity that marked the first 50 years of the last century–a combination of cutting-edge hardware and software–the technological solution–combined with the other end of the spectrum–biology, or more specifically, advances in genetics.

Some scientists argue that the lessons learned by reliability engineering, a.k.a. reliability theory, in maintaining man-made machines will lead to ways to fix aging parts of man. This means not only finding mechanical substitutions for our organs, but also by growing tissues and organs to replace failed or failing ones–lots of labs around the world are making progress on growing replacement lungs, kidneys, livers, even heart tissue. But beyond fixing the failing, these scientists suggest that prevention might be even more effective. “Even such a simple thing as an adequate supply of vitamins and other micronutrients for expectant mothers prevents extensive DNA damage and many inborn defects,” Gavril and Gavrilova argue. “For example, pregnant mice fed antioxidants, which decrease damage to DNA and other cellular structures, produce longer-lived offspring . . . [this] could lead to the prevention of age-related diseases before birth, analogous to improving the manufacturing process of a computer chip.”

So, the knowledge being gained now in scores of medical schools as well as government and private labs around the world on how the human aging process works will lead to ways of delaying the aging process from better nutrition and vitamins on the one hand, and repairing failing “systems” of the body through the use of cloned tissues from our own cells, particularly through the use of stem cells.

Despite the ethical issues surrounding them–issues that may very well be resolved to most people’s satisfactions through more research–stem cells hold out perhaps the most promise.

Another promising development is gene therapy–connecting a specific gene with the increased likelihood of contracting a specific disease–and even pharmacogenetics–personalized drugs tailored to match our individual genes. A study by Britain’s Royal Society said the use of pharmacogenetics is probably only 10 years off.

And genetics may help stave off the most feared accompaniment to old age: loss of brain function. Consider this report from researchers at the University of Wisconsin: “Stem cells have been suggested as a possible ‘fountain of youth’ for replacing tissues lost during aging. In the brain, replacing lost neurons is a challenge, as they have to then be reconnected with their appropriate targets. Perhaps a more realistic and practical strategy for affecting the aging process would be to prevent the loss of neurons from occurring, thus retaining intact circuitry. Human neural stem cells can be cultured, genetically modified, and transplanted. Using such an approach could delay the effects of aging in the brain, giving a better quality of life.”

There are other very encouraging signs that medical research is paying practical dividends. The first vaccine has been developed for cancer–specifically, cervical cancer–which kills 250,000 women a year, especially in the developing world, and some 4,000 Americans.

Bayer, the German pharmaceutical giant, has struck a deal with governments and private charities–notably the Bill and Melinda Gates Foundation–to make available Bayer’s most promising new antibiotic to attack tuberculosis, a big killer in the developing world.

These kinds of private-public partnerships for the common good, these uses of genetic knowledge to address everything from burns to cancer, hold out the tantalizing promise of prolonging life not just for us wealthy folks in the Northern hemisphere, but for those all around the world.

Another way that scientists hope to unlock the keys to living much longer is to study centenarians. They are the fastest growing segment of the population. About 85% of these 40,000 people in the U.S. are women. Researchers are looking for commonalities in lifestyle and diet, but also at two types of genes that influence longevity. One is the “disease gene” that exhibits variations that make it more likely that a person will develop a specific disease. These have been found for breast cancer, certain neurological and muscle diseases, and other conditions, and it’s more likely that centenarians will lack these genes, since those who live long tend to be those who avoided conditions like heart disease, diabetes, and cancer until late in their lives.

The other is an as yet-undiscovered “longevity enabling” gene that would retard the rate of aging and a person’s susceptibility to age-related diseases.

How Old Age Will Change

Even today, a 65-year-old woman has a 31% chance of living to age 90–for a man, it’s 17%–and that’s using Social Security’s very conservative longevity numbers.

Beyond just living longer, what makes old age such a challenge? As people age, they become more and more isolated from their communities, even their families. That’s because many of the conditions associated with old age literally isolate you: your hearing deteriorates, your eyesight weakens, your bones become more brittle, you fear the loss of mobility.

But medical science is moving beyond cataract surgery and artificial hips to lessen that isolation. In the sidebar below are three examples of some of those advances.

People with much experience with the aged kept returning to the same theme: What makes old age challenging and sometimes unbearable is the isolation and the lack of control over their lives. Technological advances like these, coupled with the promise of replacement organs, can help end the fear and isolation that many older people experience.

The Effect on Advisors

What will this increased longevity mean to advisors? Here’s my suggestion: Clients will live longer, the baby boomers will be more active in retirement, and you’ll have to respond, because every other financial services organization is looking at this same demographic data and reading the same surveys. And while boomers–the first ones start to reach age 65 in 2011–are no different from any other generation, they like to think they are special. There are some studies that show there’s far less loyalty among boomers to high profile big-company names than among the current older generation, which should be good news to independent advisors.

People who live longer will nevertheless need help in managing not just their money, but their lives. Here are four different business models that are running now that seem well situated for this future world of increased longevity:

Commonwealth Financial Network

Commonwealth Financial, based outside of Boston, has about 1,000 reps, and did about $300 million in revenue last year. If you talk to CEO Joe Deitch, he says that Commonwealth’s business is not selling investments or insurance, but rather “to attract and retain successful advisors, and help them grow.” How does it do that? In addition to all the usual broker/dealer offerings, Commonwealth has something it calls the Wealth Management team. This is a group of Commonwealth employees in the home office who are on call for all the reps, providing personalized advice on client issues from estate planning to taxes to insurance. The rep calls into the group or accesses a proprietary database of information with his or her questions. The experts provide at least two options to the rep–and there’s no requirement that the rep follow through on the advice. There’s no charge for this to the rep, and it expands the reach of each rep, allowing him to offer expertise that he doesn’t have himself or can’t even offer within his firm.

SEI’s Franchise Approach

SEI, based in Oaks, Pennsylvania, provides a range of back-office services, including investing services like separate accounts and mutual funds, to a bunch of broker/dealers. It’s co-founder, Al West, is a real visionary who figured out a few decades ago that there was a serious business in providing such back-office services to banks. He then got into the financial intermediary business with much success. Now he’s putting the company to work building a franchise model for delivering holistic financial planning and investment advisory services to high-net-worth individuals. These are franchises that use the marketing and referral heft of SEI and provide the same investing experience–very much a life planning experience– to all clients in offices that look alike. Before you reject this approach out of hand, consider Mr. West’s successful track record in being ahead of the curve. He thinks he’s figured out how to efficiently provide these holistic planning services to wealthy folks, and SEI is actively recruiting advisors to staff these offices.

Lenox Advisors

Lenox is based in New York, has about 40 employees and provides a bunch of family-office like services to its clients, who include Wall Street executives, entertainers, and professional athletes. Michael Book, a founding partner of the firm–there are six of them–is like most of the other partners, former insurance guys from Mass Mutual and the Mass Mutual broker/dealer. Yes, they sell insurance and manage money for clients, but they also act as clients’ “personal CFOs,” according to Book. They charge a totally separate fee for providing services like bill paying. There’s another interesting twist here: they were acquired by National Financial Partners a few years back–that’s Jessica Bibliowicz’s firm, which is now a public company and has acquired a host of firms–insurance firms, wealth managers, and employee benefits firms. NFP’s business model is a hands-off one, but the companies under its umbrella do cooperate with each other–it’s another way of expanding the reach of each firm. “No one of us,” meaning his partners, “has all the answers to clients’ questions,” but as a team, Book says, they do.

Schultz Financial

Schultz Financial Group is a fee-only firm founded in 1982 that exemplifies the standard NAPFA-like approach to financial planning. But Russell and Vicki Schultz and their team go beyond the standard. It strives for excellence, boasts of hiring an “eclectic” group of people, and it boasts of being unconventional. Here’s one way that it’s unconventional: it’s got a psychologist on call for client situations such as in dealing with intergenerational family issues. Vicki Schultz says you can’t just bring any therapist, no matter how good, into these situations. No, this professional must truly understand your business. It’s important, she says, since this business is “half financial and half psychological.” (For a more complete profile of Schultz Financial, see page 102)

These models are based on serving the unique needs of higher-net-worth folks, especially baby boomers. Boomers changed our culture because there were just so darn many of them that it made economic sense for the purveyors of television, movies, cereal, beer, clothing, and higher education, to cater to them.

Nowhere is this more evident than in what I like to call the Viagra Model. Once baby boomers started hitting their late 40s and 50s, drugs were found to cure a “disease” that had only recently been discovered. It helped, of course, that it was a medication to make men feel better about themselves, though women are not immune from the same vain attempt to keep time at bay.

The market was big enough, and boomers have gotten and given the message that they don’t really have to suffer the ravages of time. This model will repeat itself in the years ahead–as the first boomers start to hit age 65 in 2011, all sorts of new devices, drugs, diets, and other detritus will find its way into the marketplace, all designed to allow boomers to continue to enjoy their eternal youth. But beyond the rush to find remedies for minor ailments, this affluent market will also ensure that more serious diseases and conditions get the attention they deserve.

The Good News

Research from everyone like Mark Tibergien of Moss Adams to Rydex AdvisorBenchmarking to Mark Hurley’s white papers on the future of the financial advisory business suggests that the practices that will survive and thrive will be those that clearly differentiate themselves from their competitors.

One possible differentiator for independent advisors is to serve as a resource partner to clients in areas where older folks figuring out a new kind of retirement will need help. Let’s start with marriage counselors–one of the biggest adjustments in retirement is that couples have to learn a new relationship. Many retired couples won’t be husband and wife–there are more and more unmarried heterosexual couples around–4.6 million unmarried couples headed a household in the U.S. in 2003 (and an estimated 700,000 homosexual couples.) Take healthcare. Have you helped clients pick the Medicare health plan part B out of the 60 or so available? Have you factored in the cost of Medigap insurance in figuring out how much money a couple needs in retirement? Have you had to care for an aging parent or spouse who has a chronic condition that necessitates countless visits to various medical services providers?

In the future, which may arrive very soon, your clients will live much longer lives. So will you. Every financial services company will be trying to serve these people. What’s your 100-year plan? What’s your differentiator? Read on for more on the past, the future, and how to succeed in that future.

Editor-in-Chief Jamie Green can be reached at [email protected].


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