Once upon a time, the typical American family consisted of a husband who was the family’s primary breadwinner, a stay-at-home wife and their 2.5 children. Traditional life insurance policies were developed during this bygone era and based on this common family dynamic to protect the wife and children in the event of the husband’s untimely death. It was pretty simple. However, times have changed.
“Modern Family,” the TV show, has replaced “Leave it to Beaver,” and that trend extends beyond the prime-time television schedule. For starters, nuclear families with their own children now make up a mere 20 percent of the U.S. population, and only 17 percent of U.S. households include a husband who works and a wife who does not.
Women are working to support their families. Men are increasingly providing primary care for children. Unmarried parents of either gender are often filling both roles simultaneously.
The traditional dynamic is no longer necessarily the norm, and these scenarios are just the tip of the iceberg. Consider blended families; multi-generational households; unmarried couples with children; lesbian, gay, bisexual and transgender couples and families; and so on. Planning for a family’s future financial security is no longer a simple matter.
I recently met a stranger on an airplane. She was a talker, and I’m never one to pass on a good conversation. As a financial advisor, I found her story fascinating. She explained to me that she had a successful career in the federal government and had recently retired. She was a single and divorced woman for many years but had recently remarried to a man who lived in a different state. Her new husband has two children who are adults but who still rely on him for financial assistance.
She was understandably confused by her own financial situation. She obviously needed a plan that would do more than replace the income of a family breadwinner.
I was amazed that she had never worked with an advisor. She asked if I could recommend a book she could read to better prepare herself for the financial challenges of retirement. I replied that I wasn’t aware of any books on planning for a retired career woman who remarried across state lines into a blended family. Her situation cried out for individualized, professional financial advice.
“We would never diagnose health issues by reading a book and caring for ourselves,” I told her. “Why would we want to handle our financial health without seeking the assistance of a professional?”
My airplane encounter provides a good example of a type of prospect who might not have existed years ago, and it illustrates several of the challenges and opportunities advisors face today.
We live in the information age. Whether it’s a self-help book, e-newsletter, website, or radio or television program, consumers have more access to financial advice than ever. At the same time, most people, like my airplane friend, have financial situations that are more complex than in the past. A book or website simply cannot give them pertinent, individualized advice. This presents unprecedented opportunities for advisors.
Of course, prospects won’t always be sitting next to you on an airplane. Advisors have to go out and find them. That means looking for inroads into these non-traditional client bases.
In my hometown in Wisconsin, several times a year I organize ladies’ night gatherings for my female clients. I ask them to bring a friend. These are low-key, casual events where I can connect with women and build relationships. We generally do not discuss products or even financial matters. Yet, these ladies’ nights often lay the groundwork for future business relationships.
I know colleagues who offer programs, classes or seminars through local senior centers to tap into the older demographic. Some offer community college courses to reach still different groups. Others focus on immigrant communities. The common denominator is that advisors are finding ways to reach non-traditional client bases.
Retirement planning: accumulation vs. distribution
According to Advisor 2020, a research project sponsored by NAIFA and published by the GAMA Foundation, people who are drawing on their retirement savings are more likely to replace their financial advisors than those still accumulating for retirement. The research found that retirees have a wide range of concerns and individual lifestyle expectations. They insist that their advisors listen to them and address their specific needs.
As my airplane friend, a new retiree, was discovering, accumulating retirement assets versus spending and utilizing retirement assets requires a different mindset and different strategies. Many people find it a difficult transition without someone to talk them through it. This is an amazing opportunity.
Baby boomers who are retired or approaching retirement account for more than half of the household wealth in the United States. They want advice on how to cover their fixed monthly expenses and also provide for their other retirement dreams. The biggest hurdle they face is ensuring that they will not run out of money or will not overspend in the early years and thereby risk their financial security later on.
Complicating the situation further is the fact that many of these people fall outside the traditional nuclear family mold.
People such as my airplane friend who remarry after a divorce face a whole new set of planning issues, particularly if there are children in the mix. An advisor can help them consider a myriad of issues before the “I do’s” occur.
What is the financial situation of the new spouse?
Are there children involved and if they are minors what are the custody and support arrangements?
Should spouses in a blended family commingle the finances or keep them separate?
How should each spouse utilize individual assets to cover joint expenses?
How should assets be dispersed should one spouse pass away?
Should they sign a prenuptial agreement?
These are questions today’s advisor must be prepared to help a client confront. It’s a lot more complicated than selling Ward and June Cleaver a life insurance policy. But it’s important to recognize that every challenge modern advisors face brings a slew of new opportunities.