Archive for the ‘Wealth Management’ Category

Are baby boomers getting more attention than they deserve?

Wednesday, July 15th, 2009

Before I answer the question, here are some facts on the biggest population bubble in our nation’s history:

Fact #1:  Estimated number of baby boomers born between the years 1946 to 1964, is 78.2 million

Fact#2:  Almost 8,000 people are turning age 60 each day, according to projections

Fact#3:  Fifty-nine million boomers will be living in 2030, according to projections. During that decade year, boomers would be between ages 66 and 84—54.9 per cent would be female.

If you put the facts together—it means a big bunch of people will be receiving discounts on a Denny’s Grand Slam breakfast and will be around to eat it for a long time in the foreseeable future.

The long awaited milestone of this important demographic group is now with us, not going to go away, and in spite of the hype all around about the boomers, they will have significant implications on our economy and investment markets for the next 20 years and beyond.

So the answer to the headline, in my opinion, the more boomer attention received the better.  Bring on the hype if it helps rivet the attention of the investment community especially the independent financial advisor. This BB phenomenon is going to have important consequences for your asset management business.   In case you need a kick in the pants, remember this–another fact: 43 million of American’s 100 million households will enter retirement over the next 20 years.

As you know, clients who are retired with portfolios supporting them have different financial advice needs than younger clients who are working and saving for their future.

Your managing of portfolios after cash withdrawals begin makes these portfolios far more vulnerable to short-term economic and market swings than a client whose portfolio has 20 years to build assets. Exactly the situation we are going through now.

Let’s face it. Our industry has been overly focused on asset accumulation and portfolio performance. It’s unprepared to handle the huge distribution of assets coming sooner than realized.

This new decompression of switching from accumulating assets to helping clients stabilize those assets into income to last the rest of their lives will be catching some advisors flat- footed unless they prepare now.

There’s a whole group of issues on the stage: longevity, inflation, taxes, monthly income plans, philanthropic efforts and second job entry, healthcare and long-term care costs, estate planning, inheritance, life long learning, Social Security benefits, care giving for parents and children, liquidity, investment guarantees, retirement security and the seesaw of market performance.

Let’s just take just one issue, “retirement security.”  Compared to 2007, baby boomers confidence in their long-term retirement resources has fallen in the dunk tank.

In 2007, Watson Wyatt Worldwide, a global consulting firm focused on human capital and financial management, surveyed boomers about their retirement plans, 63 percent felt very confident about having enough resources to live comfortably five years into retirement.

The latest survey by the consulting company shows that confidence has dropped to 44 percent. Further the survey shows that 32 percent of boomers have no confidence at all about their retirement security over a 25 year period—most of whom according to life expectancy tables will live that long.

A more recent survey conducted by the Employee Benefit Research Institute (EBRI) has posted a new low in confidence about having a financially secure retirement.  Only 20% now say they are very confident about having enough to live on comfortably in their retirement years, down from 41% in 2007 (lowest since survey has been conducted since l993).

Need I mention further the “lost confidence,” market instability and Wall Street scandals (i.e. Madoff) have influenced the role of the affluent client’s primary financial advisor and how recent events have affected the confidence, trust, and reliability of his or her advice.

Due to these recent events, investors are disenchanted with advisors because I suspect part of this issue is that many advisors have been more interested in gathering assets than managing them.

As we are talking about the baby boomer generation here, the challenge for wealth advisors is simply this: You will have to work with your boomer clients to have an asset allocation strategy that fine tunes withdrawals to maintain sufficient income throughout their lives.

This calls for Human Relations 101.  You have to reassure your boomer clients even more so than those who still are working and have a longer investment horizon.  Getting specific:  why not offer a complimentary service to clients/prospects entitled “Are You Making Enough for Life”?  Since the drop of 2008 and the mini recovery of 2009—will your client/prospect run out of money based on pre-2008 withdrawals done by you or another advisor?

Since there’s a good chance your boomer clients will make it to the IRS life expectancy tables, withdrawals may be too high compared to post 2008 retirement balances.  You can be a hero if you catch this now before it’s too late to reassess your clients and prospects.  Extend this service to your newsletter and seminars.

Focus on income solutions for your boomer clients rather than specific investment products. With this approach, you as an independent advisor can develop realistic income strategies that can move boomer clients successfully through their retirement years. This approach will attract more rollover boomers to your practice.

More information on these similar topics can be found on our web site: www.dfw-assoc.com.