No secret; in the current bear market, retirees and near-retirees are hardest hit. They've accumulated the largest assets levels, and with interest rates at historically low levels, they held on to equities to generate meaningful income. Investment losses notwithstanding, they're even more fearful of losing their lifestyle. Simply put, they feel betrayed by Wall Street - and by extension, you.
To restore confidence, approach clients from a planning perspective. Save the talk on investment strategies for a later discussion. While some may be concerned about specific investment decisions (for instance, their exposure to emerging markets), at the end of the day they want to know if they can still afford to visit their grandchildren.
Consider the case of a retired couple with a moderate risk profile. The market downturn impacted them significantly, and like most people in their situation they're concerned about whether they can support their lifestyle going forward. They know the value of their investments has dropped, but they don't know what that translates to in terms of income and spending adjustments.
When you contact clients to schedule a review, focus your discussion on what can be done to proactively remedy their situation. Tell clients you want to revisit their retirement plan and reassess their situation using planning software. In addition, do as much fact finding as possible with respect to how their situation has changed. You already know about their assets, so ask them how their spending habits have changed, or about changes to their estate planning goals. As you ask these questions, you'll be able to determine what's driving their fears, what their new priorities are and identify what compromises they're willing to make.
When you conduct the review, focus on using it as the catalyst to rebuilding their trust. Come to the meeting prepared with a few different scenarios. Having quantifiable data to support your recommendations is imperative to restoring the client's trust. Specifically prepare the following:
- A baseline scenario that shows their current situation based on current assets.
- A second scenario showing a 5 percent to 10 percent reduction in spending.
- A third scenario showing additional income from part-time or consulting work.
While none of these models is likely to be a panacea, they'll show incremental improvement. The key is to show your clients hope for long term success.
For the meeting itself, be prepared to discuss the following three topics with your clients:
- Their current situation. Besides reviewing asset levels and investment allocations, provide clients with an opportunity to vocalize their frustration. By doing so, you've let them know they've been heard and that you empathize.
- Their new reality. In the example above, we know that the client's primary concern is their retirement lifestyle, and since we know their assets are down, so is the probability of meeting long term income goals. It's the new reality, so focus on understanding what your clients are prepared to do to adapt. Having clearer insight into your clients' mindset will enable you to make better recommendations to their portfolio.
- Their new opportunity. How can you and your clients restructure portfolio and retirement plans to improve their chances of long term success? This will involve revising risk tolerances and asset allocations, or require the clients to buy into a new budget or revise legacy-planning goals. This is where we implement the new plan.
The anger and frustration that clients feel may be due to not knowing how to react to what's happening. Knowing that they have actionable options provides hope. By taking the time to prepare different plans in advance of the meeting, you're demonstrating to the client that they're valuable to you and worthy of your time, which will help rebuild trust and restore confidence.
Keith Hylind is Vice President of Retirement Solutions at OppenheimerFunds Inc. He can be reached at email@example.com.