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January 01, 2007 at 02:00 AM
As the population ages and the markets become increasingly challenging, two trends have become top of mind for advisors: the dominance of retiring baby boomer clients and the rise of alternative investments as portfolio options. In our most recent survey of 333 RIA firms, conducted online in November 2006, AdvisorBenchmarking explored both of these trends to shed more light on how advisors can turn these market challenges into business opportunities.
The aging of the boomer generation has been covered ad nauseam in virtually every publication and from every angle. We all know the statistics: 76 million members strong, it’s the largest generation of all time and 70% of the nation’s wealth is in their hands. Retaining boomer assets is a key objective for most advisors, as these wealthy clients transition into retirement and begin to transfer their wealth to their heirs. Right now, nearly half of advisors (43%) say that 20% to 40% of their clients are retirees and that number will only increase in the coming years.
Here’s how advisors are preparing for this demographic tectonic shift: About half (51%) are developing tools and resources to assess clients’ retirement readiness and identify areas where they need additional support. About a fourth (26%) are seeking to build strong relationships with the children of their clients, and 24% are seeking to become retirement experts by taking educational seminars and courses. Twenty-one percent are positioning themselves as “retirement coaches,” and 17% are partnering with other professionals who offer services to pre-retirees.
A Focus on Healthcare
Preparing for retirement and retirement itself can be a complex time for boomers–they’re changing every aspect of their lives. From career to lifestyle to income to living arrangements, soon-to-be retirees face a daunting list of choices and challenges. Add to that the physical changes that come with aging and it’s no wonder that they’re looking for help in making these life decisions.
Many advisors are looking to be retirement experts or “coaches” to their clients. But to meet the needs of retiree clients, advisors will need to beef up their knowledge not only of investment-related retirement issues, but also non-investment areas–such as healthcare and living arrangements. We asked advisors to grade themselves on their ability to address their clients’ retirement-related needs in the areas of income-related investments, wealth retention, healthcare issues, and living arrangements. We discovered that while advisors feel well equipped to handle the investment side of the retirement equation, they’re not so prepared in the non-investment areas.
For example, most advisors ranked themselves as well-equipped in the areas of wealth retention (64%) and income-related investments (64%). Conversely, about half of advisors say that they have adequate knowledge of retiree healthcare issues (48%), and retiree living arrangements (50%). About a third of advisors are planning to increase their expertise in these areas (28% healthcare and 34% living arrangements). Interestingly, 17% of advisors say that they do not have familiarity with retiree healthcare issues and do not plan to enhance their understanding of this topic, while 10% of advisors felt the same way about retiree living arrangements–a big issue for retirees as 55% say they will move when they retire, according to the 2004 Del Webb Baby Boomer Survey.
The takeaway? If advisors are planning to position themselves as retirement coaches or experts, they’re going to have to develop expertise in these non-investment areas or partner with someone who already has it. Otherwise, clients will turn to someone who can offer them a complete solution and comprehensive answers on retirement issues.
Retiree clients are, of course, interested in maintaining their income stream. Advisors ranked their preferred methods for retirement income solutions, with most advisors (43%) recommending systematic withdrawal strategies. Dividend paying investments came in second (16%), while mutual funds (12%), annuities (8%), and bonds (6%) rounded out the list of top five preferences.
