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Bucket Theory Helps Clients Sort Out Retirement Goals: Juliano, Birke at RIS

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How can bucket theory speak more effectively to retired clients’ inner goals? That timely question was tackled by Kol Birke and David Juliano of Commonwealth Financial Network in a tag-team presentation at the 5th annual Retirement Income Symposium in Boston on Thursday morning.

Positioning Yourself as a Retirement Income Guru

Juliano, a senior advanced planning consultant, kicked off the “Psychological Benefits and Technical Hurdles of Retirement Income Buckets” presentation by reviewing how advisors can set up their practices to position themselves as retirement income specialists.

In the accumulation phase, your clients’ (and your) chief concerns were market loss and inflation, while in the retirement income phase these issues also include healthcare costs, outliving assets and ensuring adequate survivor income. Juliano pointed out that even clients who have worked with you for years will be wondering if you know their optimum Social Security claiming strategy, or can tell them in what order to liquidate their investments.

Achieving the typical interlinking objectives of lifetime income, legacy goals and asset protection means dealing with many moving parts, such as Social Security, pensions, qualified and nonqualified plans, annuities and deferred compensation. That’s a lot to juggle, and it may mean your client’s retirement phase is more service-oriented even though the assets you manage are dwindling. Advisors need to develop a scalable approach to managing this complexity, Juliano said.

Helping Clients Make the Best Decisions

Birke took over to address the bucket approach as a way of framing retirement asset allocation in a client-friendly way. Since people prefer guarantees to probabilities, instead of showing them a pie chart with a 10% cash allocation, you can talk about a “bucket” of guaranteed income for the next three years. Other framing tips: 

  • Instead of “retirement,” which suggests an ending, use “financial independence,” which suggests a beginning;
  • Instead of “equity exposure,” use “investments for potential growth;”
  • Instead of “self-insurance” for long-term care, which sounds mandatory, use “self-funding,” which sounds discretionary.

Birke also explained that getting a message across is a combination of factors: the words you choose (about 7% of total impact), the way you say them (38%), and your body language (55%). You don’t have to be an expert at this in order to improve customer understanding, satisfaction, and eventual referrals, but you’ll outperform most other advisors if you just become incrementally better each time you speak with a client.

A new model of data gathering is also part of helping clients make better decisions, Birke said. This includes: 

Define the goals. This is your most powerful leverage in influencing plan success. Clients’ goals are often out of focus. Your task is to clarify not only “what” these goals are but “why,” in order to help the client truly get behind them. If you need to modify the plan later, explain how it will (or won’t) affect these inner goals. Tools that can help clients visualize their goals are an “ideal week in retirement” worksheet or a spreadsheet of how they’re currently spending their time vs. how they would like to spend it.

Take an inventory of their fears, using their own words. Echo these specific words when you talk to them.

Inventory their strengths. This private process will help you understand how to influence their behavior. It’s always easier and more pleasurable for everyone concerned to go with the flow rather than against it.

Inventory mistakes they’ve made and lessons learned. This information may be useful if they contemplate a similar error later.

Know how they behave when stressed. The “fight or flight” response incites panic that blots out consideration of other options. “Rest and digest,” by contrast, broadens one’s perspective and allows contemplation of goals. To help evoke the latter response, slow down the conversation (get a cup of coffee or move around the office).

Implementing the Plan

To implement the bucket approach, Juliano said, you need to be able to control and aggregate assets and have the tools and alerts to rebalance between “buckets” as needed. He described a five-step process:

  1. Determine the tax characteristics of accounts;
  2. Determine the duration of each bucket’s contents;
  3. Determine the specific holdings in each bucket;
  4. Create the paycheck (regular stream of income to the client);
  5. Monitor the plan; rebalance buckets as necessary.

Juliano noted that in putting this process together, you’ll want to consider the number of accounts per client, estimated trading costs, the software tools needed to explain the bucket concept, staffing, and compensation.

Last, Birke summarized, be sure to follow up after the plan is implemented. You may be satisfied, but what is the client thinking? Ask if the plan is meeting their needs and expectations, and if there’s anything else you could do for them. Make an opportunity to ensure that they understand the value of your expertise–much like the housewife in an early cake-mix ad who brushed flour in her hair to emphasize her hard work.