As baby boomers approach retirement, advisors need to shift their focus away from returns and yields and toward determining clients' goals for retirement and personal legacy. That's one of the key issues for Don Froude, president of Ameriprise Financial's Personal Advisors Group - and it's a deeply personal one.
Retirement brochures tend to sell a life of shuffleboard and sunshine, he points out. But when he visits his retired father, it's not at a beach house, but in an assisted-care facility.
Residential care costs more in one month than any single vacation his father, now in his 80s, ever took, Froude says. If his father's advisor had focused more on a holistic financial plan, including long-term care provisions, his father's money could have wound up helping his family or going to charity. "Where was the advocate for my family when we needed him?" Froude asks. "He was too busy managing the money."
In an interview with the editors of Financial Planning, Froude talked about his outlook for the industry and how his personal experiences shaped his perspective. Below are excerpts.
In the coming years, how might the advisor-client relationship evolve?
The financial planning road, in terms of engaging the client in a holistic way, is still the right way to do it. The trend I see is that more advisors are starting to adopt this method, and I think the clients are starting to request it. I think advice for a fee is going to become more of a component of the overall compensation.
In the way that a client might find working with a CPA or a lawyer?
That's exactly the comparison. If we went down to Shearman & Sterling, you would expect to pay more for the senior partner than you would for the first-year Harvard associate, right?
And that makes perfect sense. You say, "Well, if the person's got 30 years of experience, then that's worth something." In our business, for the most part, it doesn't make any difference. You've got 30 years of experience or 30 days' worth of experience, the fee's exactly the same. I think you're going to see that shift drastically. I also think over the next five years that the CFP will become as mandatory as the Series 7.
Do you see compensation moving even more to an AUM or hourly fee model from a commission model?
There's going to be some fee that's going to be attached to the advice and the intelligence that you're bringing to the relationship. There's some value to that that needs to be represented.
What differences do you see between Ameriprise's employees and its franchise advisors?
Right now, on the employee side, we have about 120 offices, and I have probably about 2,300 advisors. We have roughly 7,500 on the franchise side, so we're just under 10,000 right now. The dual model is a wonderful way to go.
The customer experience is the same, in terms of what you're getting from the brand. The big difference is the fact that the employees say, "Listen, I want to come in and work, but all of the problems associated with running the business, other than my own piece of it, I want to delegate to somebody else." The franchise advisor says: "I want to control my real estate. I want to determine whether I have an Oriental rug. I want to determine how many days I'm going to be open and where I'm going to sit - and I also really want to build my own equity in my practice."
I love having the two platforms because I can have big offices in the major or medium metropolitan areas, and yet I can have wonderful franchise practices in places where a bigger office wouldn't be practical. So in Fargo, N.D., we have some wonderful advisors, but it wouldn't be big enough to sustain 25 people.
How has the retention rate been in the past year?
On the franchise side, we're running about 97%, and on the employee side, we're running at 93%, 94%. Four or five years ago, it was in the high 60s.
How are you training the next generation of advisors?
On the employee side, we put a program together about two years ago called our targeted career changer program. We're going to hire 100 to 150 people a year who have had a previous career - schoolteacher, pharmaceutical salesperson, tennis pro. They're attached to a senior advisor who is responsible for their development, and then over time that person is weaned.
Are you now actively recruiting high-end wirehouse advisors?
Five years ago, we had almost no ability to talk to a $1 million-plus advisor at another firm. But we hired more $1 million or $2 million-plus producers last year than I even talked to in 2009. I'm proud of that.
Are you also going more upmarket in terms of your target retail clients?
I think we would like to move in that direction, although we have a different model.
I hate to bash somebody, but how do you feel if you're an advisor and you're told that if your client doesn't have $250,000, we're not going to pay you for that relationship anymore? I've got a problem with this, philosophically and morally. If those people need advice, where are they going to get it, and why shouldn't I get compensated for that?
Another thing is: Do you really determine that someone is a good client by how much money he or she has? I know people who have millions of dollars, and they're miserable - they're lousy to deal with, you don't want them around, you dread their calls. Eventually, you give them away. Life's too short.
The third thing: If I'm an advisor today and my practice is loaded with boomers, they are declining in assets because they're using their money. So if I'm 50 years old and I want to grow my practice, who do I have to bring in?
People who don't have $250,000.
They don't - but they will someday, and they need the advice.
Our son's 26 and I have a 28-year-old daughter. My son has been a good little saver, but now he says, "Dad, what do I do with this?" He's got $68,000. I said, "What you need is an advisor." I said to the advisor, "I've got a great guy for you. Will you take my son?" He said, "As long as he'll pay my $1,500 planning fee, I'm in."
My son goes in there every quarter and his knees are knocking - he's got to explain how he spent so much money on his girlfriend and why he went on this vacation and how come he didn't do this. Now, my son just got a six-figure bonus. He's going to be a good client someday, a really good client.
So Ameriprise has no minimum?
Advisors can take anybody they want as a client. It's their decision.
What kind of potential do you see for advisors in client niches?
I have this belief that in the next 60 months you're going to see more advisors focused on what I'll call geriatric planning. As people continue to live longer, the issues become far different from what they were before.
How does geriatric planning work?
My dad's 82 and he's in a facility up in Massachusetts. When he started to get dementia at 72, his wife of 31 years decided that the best treatment was to divorce him, and she did. That cut everything in half. He came and lived with me for a year, and now we spend $13,300 a month to keep him in a facility - a good one. I don't care how big your pile is; at $160,000 a year, it doesn't take long to burn through it.
When I became his guardian and I started to dig into finances, I found he had an advisor for 26 years, and the advisor averaged an 8% return on his assets. I asked the advisor, "How come you never recommended long-term care to my dad?" And he said, "I mentioned it one day and he said he didn't want it."
Now, if you're truly an advisor, you have to at some point become an advocate for your client. I shouldn't allow a client to commit economic suicide if I know that the decision is really going to change everybody's life.
The other piece that bothers me is from a professional standpoint. All the advisors today talk about retirement, and show you brochures - they've got pictures of people on boats and they're smiling, dancing, drinking. But I've got a different view of retirement now. I go into a building, I pull a door open and a medical smell hits me and there are three or four people on breathing machines, 12 TVs, all on loud, on different channels.
My dad's 'retired.' And the advisor didn't do his job. I get mad at that. Where was the advocate for my family when we needed him? He was too busy managing the money.
What is an advisor's role now?
One advisor told me a story. He said: "I had a financial planning client who was with me for 10 years. I had about a million and a half dollars of his money, but he and his family actually had about $20 million to $25 million, and it was spread around.
"One day, he came to see me. 'Listen,' this client said, 'I just had two days of tests. Tomorrow morning I have to have an operation that has a 68% failure rate. If I can't make decisions for my family tomorrow night, I need to know if you'll do it for me. I need to know this before I go and tell my wife what's going on.'"
I couldn't think of a greater compliment about my career than to have someone say, "I want you to take care of my family." I don't know how many times that conversation would happen at any of the major firms, but it happens here a lot.
How do you think the fiduciary standard debate will play out?
I think it's going to happen. We're running our company as if it is. I don't see it drastically changing the way we do business. Personally, I think it's better for the industry. I think it's the right thing to do for the client.