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Finding growth outside the HNW client segment

Financial advisors tend to seek out coveted high-net-worth investors, but they aren’t a planner’s only chance for growth. There are plenty of opportunities to be found where advisors help the average Joe, especially when it comes to retirement planning.

This large and underserviced client segment can benefit greatly from an expert’s perspective, but they also may not realize help is available or even know how to find it, says Alex Koury of Values Quest in Phoenix. This begs the question, what are the best strategies to target this potential client?

“The biggest thing we can do as advisors is offer our services and lay out our cost of services to people that really only need, say, the financial plan,” Koury says.

This can break down barriers and change misconceptions around working with an advisor because “if someone knew that they could get their whole planning done for a few hundred dollars to maybe $1,000 — depending on the complexity of their financial plan — that’s a different conversation than the public automatically assuming that advisors won’t talk to you unless you have $250,000 of investible assets.”

Americans say — on average — that they will retire at age 66, according to a 2018 Gallup survey. However only one in three middle-income workers are on track to achieve a comfortable retirement by age 67, data from Aon research shows. Based on current savings habits, the average U.S. worker will need to wait until age 70 to retire, according to Aon.

As baby boomers and the oldest gen-Xers move closer to retirement age, they’ll need guidance to get them through their non-working life, but are unsure how to proceed.

Indeed, only 50% of people between the ages of 60 and 69 consider themselves advisor assisted or advisor directed, according to a 2018 Cerulli survey asking investors how they would classify their advice orientation.

“In many cases, aging investors do not know where to turn, or who they can trust for advice in this area,” says Scott Smith, director of advice relationships at Cerulli. “Advisors that are able to credibly connect with investors in this segment can make significant positive impacts in the lives of investors as well as their own practices.”

But there is one trend working in advisors’ favor. “Investors’ willingness and confidence to operate on a self-directed basis declines with age,” Smith says. “Once investors have accumulated assets and are approaching retirement they need more hands-on help. Creating a sustainable retirement income stream is much more complex than maintaining an accumulation portfolio.”

The real opportunity, though, comes from seeking out that other 50% of retirement aged-people not working with a professional but in need of expert guidance.

“One opportunity is through financial education workshops,” Koury says. “Whether you can set up a workshop through our local library or community college, those are great ways to get in front of people that want to learn about financial planning and financial education. You can be a teacher to them, to show them how to put a financial plan together. Those are great ways that are very inexpensive to execute.”

Speaking directly to different companies and other organizations and employers within your community and setting up financial wellness programs for their employees is another way Koury says advisors can reach those in need.

“Have a marketing strategy for reaching folks that aren’t the high-net-worth individuals but still have financial planning needs,” Koury says. “Most people that already have a lot of money and little debt don’t need a whole lot of help. But this is always the default, in my opinion, when it comes to marketing and prospecting is looking for those that have the most money. But people that need the most help are the ones that aren’t being paid attention to at all.”

One of the top priorities for advisors is to make sure clients’ retirement savings and other funds will not dry up during retirement. This is also a top priority for clients as using retirement money can sometimes feel as though they are stripping away their security blanket, says advisor Melissa Sotudeh of Halpern Financial in the Washington D.C. area.

As a result, she takes her clients through an awareness exercise that stress tests the portfolio to see how it will hold up in the event of a bear market.

“The typical advice of a 4% withdrawal rate does not take sequence risk into account, and it doesn’t account for required minimum distributions, Social Security benefits, or the fact that a person’s retirement income needs may change over time,” she says. “We typically create a plan called a retirement income security plan for our clients, which details a withdrawal sequence and proper portfolio allocation to support an individual’s retirement income needs.”

It’s important to have an idea of how money will flow — and be taxed—from all income sources, Sotudeh adds.

In a situation where an individual has saved all of their money through retirement accounts, which are generally all pre-taxed, meaning the money will be taxed as it is withdrawn to meet retirement needs, advisors have to look at it in a discounted manner, she explains.

“So when we’re doing this analysis [asking] what is the right amount or a safe amount to spend out of this portfolio? We do take into account if it is all pre-taxed money because the balance of the pre-tax account, the value needs to be discounted for the tax impact. So it’s lower,” Sotudeh says.

After all, an advisor may be able to come up with the perfect plan but if they are unable to reach the people that need it most it could all be for naught.

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