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Financial Planning > Charitable Giving

THE GLUCK REPORT, Part II: Two Views of the Future

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Ever hear the one about the gorilla that walked across the basketball court? According to futurist Arnold Brown, psychologists asked a group of people to view a one-minute video of a basketball game, and they were asked to count exactly how many times they saw the ball being passed. Thirty seconds into the video, a gorilla walks across the court, from one side to the other. Yet after the video ends, only half of the viewers report having seen the gorilla. The others were so busy counting passes that they missed the big beast walking by.

“Psychologists call this ‘inattentional blindness,’” says Brown. “You’re so focused on what you’re told to do that you don’t see anything extraneous to it.” Brown says that most of us are so busy counting passes and doing what we’re supposed to that we’re missing what’s going on around us. Financial advisors, by his way of thinking, are so busy downloading their portfolio data, finding the next Microsoft, and looking for the next big client that they fail to see how the world is changing right before their eyes. There’s a gorilla in the room and many advisors are missing it.

Of course, the future is not so obvious a manifestation as a big hairy ape. The future is an abstract concept, a jumble of facts about the present mixed in with history and good judgment. No one, after all, can really know the future.

So when I was asked to write something in my column about the future of the industry for this month’s 25th anniversary issue, I was initially skeptical. I began looking for futurists who have special knowledge about the financial services industry. I had always thought of futurists as fortune-tellers in business suits. But after researching legitimate futurists with expertise in the financial services industry, I came away with some very practical ideas, some of which are disturbing, about the future of the financial advisory business.

Just in case you ever need a futurist, incidentally, you can contact the Washington, D.C.-based World Future Society (), a trade association for these forward-thinking individuals. Being a futurist, of course, requires no accreditation, no license, and no specific expertise. Anyone can hang out a shingle and call himself a futurist. Not surprisingly, some of the futurists I came across in my research didn’t seem to have much in the way of hard data to back up their predictions, and they are simply selling themselves as keynote speakers for conferences or using the title of futurist to sell something else.

So it was helpful when WFS pointed me to Brown, who has lectured at Harvard Business School on long-term strategic planning, co-authored three books, served as a vice president of the American Council of Life Insurance, and consulted to many of the nation’s largest companies, and to Larry Cohen, director of consumer financial decisions research at SRI Consulting Business Intelligence. We’ll come back to Cohen’s research, but first listen to what Brown is saying.

Have an Open Mind

Brown’s latest book, Future Think (Prentice Hall, 2005), co-authored by Edie Weiner, is not about making predictions but rather how to think of the future. Brown asserts that many business people miss the future because they’re hampered by the present. So the first thing you must have to envision the future is an open mind. Brown maintains that the financial services industry’s future is framed by 30 years of disintermediation. “People became better informed because they’ve had more information available than ever before about their financial choices, and they decided that they want more from their money than what banks and S&Ls were giving them, which spawned an era of investing and investment products that were much more complex than savings and passbook accounts,” says Brown. “Now what’s happening is re-intermediation, and that’s because there is too much information and the most sophisticated people don’t know what to do anymore.”

Brown says clients are looking more than ever for navigators, who can help them chart a course through this complicated landscape. Certified Financial Planner licensees, he says, are well positioned to capitalize on this trend. However, there is one caveat: mistrust is at an all-time high. People are increasingly distrustful of their advisors. The days of salespeople being able to make a good living in the financial advice business are gone, according to Brown, and advisors must focus on creating relationships. What’s a relationship? It’s when leaving an advisor exacts a cost. It’s when firing you or doing business with another advisor instead of you costs something to the client.

Brown says exacting a cost may be as simple as creating personal chemistry with a client. To me, however, advisors can up the ante to something more valuable than losing an advisor with which you have personal chemistry. By providing personalized advice to clients about complex topics like tax, estate planning, and investment analytics, an advisor can make the cost of leaving much higher. In other words, simply selling a product and checking in with a client once a year may not create a relationship and thus constitute a cost to a client for leaving you. However, if you examine each client’s personal situation and provide them with more personalized advice , the relationship is stronger. To me, if you’re not designing a financial plan for every client you work with and updating that plan at least once a year, then you don’t make the cut. The cost of leaving you just isn’t high enough.

Brown also says that in creating relationships that can grow your business, it’s unwise to apply the much vaunted strategy of focus on your “A-list” clients with the most wealth and dropping your less profitable clients with fewer assets for you to manage. Brown suggests focusing on those with the best potential for being A-list clients over the next five or 10 years.

Over the next decade, a tremendous generational transfer of wealth will, of course, unfold. Since large financial services companies are dumping low-revenue clients and treating them like “second-class citizens,” Brown says providing these people with good advice and service and building relationships with them is a great long-term business investment, especially if they are likely to be beneficiaries of that wealth transfer. “If you position yourself well with these people who are not being treated well by the large financial institutions, it should work out well for you over the long term,” says Brown.

Fear not technology, Brown says. It is creating more value in human contact. “The increased use of technology and advice over the Internet is creating an increase in the desire for and value of a human relationship,” he says.

Cohen: Consumers Are Pulling Away From Advisors

Tempering Brown’s optimistic view of the future for independent financial planners is data from Larry Cohen. For 20 years, Cohen has run a biennial consumer research project, MacroMonitor, that bills itself as “the largest comprehensive retail financial-services database and marketing program that has measured, analyzed, and interpreted consumer attitudes, behaviors, and motivations continuously since 1978.” According to SRI’s Web site, “No other financial services research program, syndicated or proprietary, collects as much information about all types of financial products, services, delivery methods, and institutional use. No other program has been trending and analyzing consumer behaviors, motivations, and psychology consistently for as long.” This is in-depth scientific survey research of financial consumption preferences. A subscription to the research starts at $50,000.

So what is Cohen seeing from the last survey conducted in mid-2004? One of the most intriguing findings is that consumers are disengaging from their advisors and from managing their finances. “Fewer people were getting financial advice and fewer were saying they intended to get advice as compared with our 2002 survey,” says Cohen. There is a decline, says Cohen, in brokerage trading, investment accounts ownership, mutual fund ownership, and stock ownership.

In addition, the answers consumers gave to a question Cohen asks in every survey– “What would you do with a $25,000 windfall?”–also signaled a major shift in consumer attitudes.

Significantly more respondents in 2004 said that they would spend the windfall on something the household wants or needs or use it to pay off debt, and fewer indicated that they would save or invest it. This shift–which held true across all income and wealth levels–toward living for today and away from worrying about tomorrow may be a perfectly rational reaction to the financial industry scandals and recent economic and geopolitical gyrations. As long as this shift is only a temporary respite, then the harm is minimal. If it becomes a pervasive attitude, Cohen says, then the damage could be significant, not only to the 81% of households that are not affluent, but to the nation as a whole.

Cohen says that if more Americans don’t start to shift back toward saying they’d save or invest a windfall, it could signal a watershed change. “We may be at a tipping point in how consumers act with their financial intermediaries,” he says. If Americans remain distrustful of what their brokers say, no longer believe that the stock market has to go up even over a 10-year period, and distrust numbers reported by publicly held companies, Cohen says, “it may be a whole new ballgame.” It may be much tougher to market to them.

“It’s been over 20 years since we saw a change of that magnitude, but we may be seeing it now,” he says. Cohen notes that many investors have no notion that the stock market could stay flat for 20 or 30 years. Not getting returns on stocks could be making them disengage not just from stock investing, but from all aspects of managing their financial lives. “I don’t fully understand it,” he points out, “I’m just measuring it.”

Cohen says, however, that he is “perturbed by it because I couldn’t imagine a period when people did not need more advice than now. Individuals are responsible now for more of their own financial decisions, but people don’t know who to trust, and that’s why they’re saying, ‘I’m going to take a break.”’

Editor-at-Large Andrew Gluck, a veteran personal finance reporter, is president of Advisor Products Inc. (, which creates client newsletters and Web sites for advisors. Advisor Products may compete or do business with companies mentioned in this column. He can be reached at [email protected].


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