You’ve been told over the past 20 years that this would be the golden age for financial advisors. The largest generation in U.S. history, the Baby Boomers, would be nearing retirement and everyone would need advisors to help them manage their large pool of investable assets. Advisors who were lucky enough to be around for this era would be thriving off a prospect base of more than 77 million people.
Things turned out drastically different than we all had anticipated. Today, only 11% of boomers say they are very confident they will be able to retire comfortably, according to a recent Associated Press survey, and 44% have little or no faith that they can retire at all. Boomers are in fact so unprepared that we’re facing a massive, looming retirement crisis that will affect our entire economy. The sad part is that most Boomers aren’t seeking services from financial advisors because they are skeptical. When you consider the other 89% of boomers are not on track to retire and aren’t seeking advisors’ services, it becomes clear that the actual market available for business is extremely small compared to the overall boomer population.
Economic turmoil and shifting trends in employer-sponsored retirement benefits have been partially responsible for the boomers’ retirement crisis and for generations to come, the road to retirement is only getting foggier. Today, only 31% of employees have a traditional pension plan and for those that work in the private sector, pension payouts typically fund only a portion of their income needs in retirement. Moreover, 66% are not confident their own investments are allocated properlyand many don’t know that the life expectancy for those that reach full retirement age is 85 years. This means that employees, even beyond the boomer generation, are at a huge disadvantage when it comes to having adequate retirement savings.
Why Financial Education Is the Solution
It’s obvious that a solution is needed to bridge the gap. But the problem isn’t how boomers are investing their assets—it’s how much they are saving in the first place. The solution has to effectively change boomers’ and other future clients’ behavior. Currently, the national average savings rate is just above 5%, so just imagine the impact it would have on your business if all your clients, or potential clients, saved twice that amount. With financial education, advisors could literally be doubling or tripling their revenue without doing anything more themselves. Workplace financial education programs have increased the average employee deferral rates into their retirement accounts to 11%. In fact, the more times an employee receives retirement education, the higher their average deferral rate:
Someone earning $75,000 and who’s been saving for 20 years, putting away 5% of their income—and earning an average 8% annual return—would bring to an advisor about $184,000 in investable assets. A client in the same situation who has been saving 11% would bring to you nearly $405,000 to manage. Which client would you prefer to work with?
Financial education provides a huge benefit to advisors because it also
teaches people the fundamentals that advisors don’t have the time or would rather not exhaust resources to provide.
Yes, I believe in the value of educating retirement plan participants, and my firm, Financial Finesse, in the workplace education business. That’s why I know how important it is to provide education to employees for that worker’s benefit and her family’s. Better education that increases deferral rates and retirement readiness is also of great benefit to the advisor community, I’d argue, in addition to being good for the country itself.
After all, employees who participate in financial education have less debt, manage their finances better and are more proactive about their finances, realizing when they need a financial advisor rather than playing guessing games with their investments. This opens up an entirely new market that advisors are currently unable to reach. Here’s why financial education can be the solution advisors need: