During the worst months of the Great Recession many advisors spoke of how they were spending a lot of time holding their clients’ hands and reassuring them about their financial plan.
Even though the worst of the economic downturn appears to be over, and many clients are regaining confidence, it may be wise for advisors not to completely abandon a more hands-on approach to portfolio management.
First off, new research conducted by the Corporate Executive Board, an advisory and research membership company, perhaps challenges the notion that the recession has created a seismic shift in retirement outlook, at least among high-net worth Baby Boomers.
Wallace Blankenbaker, a senior director of the VIP Forum at CEB, said that even after the crisis wealthy Boomers have felt mostly unaffected insofar as how they view retirement—they still have the same lifestyle goals, still plan to retire at the same time, and have not really shifted their approach to savings in an significant ways.
“Conventional wisdom is that the boomers have completely altered their outlook for retirement, but we have not found that to be the case with high-net worth boomers,” Blankenbaker said. “I’m not saying they shouldn’t, but right now we aren’t seeing any changes.”
But this unwavering confidence in retirement outlook could also be somewhat deceptive. Close to 90% of the 1,250 Baby Boomers surveyed by the CEB indicated they have spent either a great deal or a fair amount of time thinking about retirement. Also, between 2007 and 2008 high-net-worth Baby Boomers lost 22% of their investable assets. In addition, 48% of those surveyed said that they have reduced their spending over the past 18 months.
Now, we’re not going to say that the wealthy Baby Boomers are a little less confident about their retirement goals than perhaps they’re letting on, but one thing’s for sure: They are thinking about retirement a lot. In that respect, they are probably no different than the rest of us. Obviously, high-net-worth Baby Boomers remain a market that offers advisors some good business opportunities. The CEB’s research backs this up.
Nearly three quarters of high-net-worth Baby Boomers are very involved with their investment portfolios, and monitor their savings and investments more closely than any other baby boomer income group. Not surprisingly, the CEB has found that these investors are draw toward advisors that provide “foundational” planning—basically an in-depth process that is led by the advisor (rather than by an accountant or other financial relationship the client has), and includes custom-made portfolios with annual portfolio discussions. Essentially, these investors want advisors that are engaged and more hands-on.
“There is a strong relationship between providing a real plan and grabbing a share of a boomer’s wallet,” Blankenbaker said. “This is a real revenue driver for (advisors).”
The CEB’s research uncovered some interesting findings about how high-net-worth boomers give and take away their business with advisors. Besides foundational planning, the CEB looked at “superficial” planning, which is basically the opposite approach—cookie-cutter plans, passive guidance, no emphasis on retirement planning, etc. Approximately 27% of boomers moved their assets over to their primary advisor with foundational planning, while 6% moved them away. Meanwhile, 24% moved their assets to primary advisors who provided superficial planning, with 10% moving them away. In addition, 18% of boomers moved more of their assets to primary advisors that basically provided no plan (meaning the plan was provided by someone else, like an accountant), while 7% moved their assets away from these advisors. In other words, advisors were hurt more by providing a superficial plan, than by providing no plan at all.
Approximately 62% of the high-net-worth boomers surveyed said they are not engaged in foundational planning with their advisors, which could mean a business opportunity for other advisors willing to get more in-depth and hands-on. Of those who boomers who did receive foundational planning, 68% said they are “very satisfied.” Approximately 43% of high-net-worth boomers that were engaged in foundational planning with their advisors increased their savings by 18%.
CEB has identified three advisor attributes that increased share of a boomer’s wallet: trustworthiness, empathy and influence. The CEB said advisors can demonstrate these qualities by providing their clients with in-depth foundational planning. Blankenbaker reminds advisors about how much time boomers spend thinking about retirement. “So they are in this place where they need help,” he said.