What’s to be done? It’s a loaded question everyone is asking in the wake of the S&P downgrade and resulting market volatility. In our case it refers to retirement income protection (or the lack thereof). The person to draw the short straw in answering is Tim Noonan, managing director of Capital Markets Insight with Russell Investments. Only to our surprise, he’s more than willing to answer and has been preparing for the question for quite some time.
Noonan, (left), has a new book, “Someday Rich,” which sheds light on what’s happening. He’ll also be a keynote speaker at Investment Advisor’s Retirement Income Symposium October 17–18 in Boston.
We’ll begin with the easy question—what’s to be done?
What’s going on is an echo of why I wrote the book. It details the need for a new way to financially plan and offers a radical redesign for client engagement. No longer can we look at advisors as Sherpas trying to achieve ever higher rates of client returns on the investment equivalent of Mt. Everest. Everyone agrees at this point that the approach isn’t working. Both advisors and clients are open to doing things differently. The problem is that few people know what that is.
So what is it?
For wealth managers who are relationship- and process-focused, they need to begin to look at funded ratios rather than return targets. If they don’t look at it this way, they can’t really deal with the anxiety of whether or not clients are on track to meet their financial goals. We engaged Matt Greenwald of Mathew Greenwald and Associates to help us, in turn, help wealth managers when reaching out to their clients in this way. Together, we developed three questions wealth mangers should be asking: The first is, “Do you even know what the lifestyle you envision in the future will cost?” The second is, “What are the chances you will run out of money and outlive your assets?” The third is, “How can you make sure that each aspect of the nest egg you’ve developed is being optimized?”
The questions hopefully lead advisors and their clients in addressing twin goals; achieve the lifestyle clients want, but achieve it in a sustainable fashion.
What kind of data did you get back from Greenwald?
We partnered with Matt Greenwald in the dark market times of the recession in order to get under the hood to find out what clients are really afraid of. The answer, overwhelmingly, was “destitution late in life.” There was this unbelievably pregnant fear of scarcity in the future, and clients felt like there wasn’t a whole lot to deal with it.
We got back this great data and all these great numbers, but we realized the way in which we (and by extension wealth managers) were talking about it is all wrong. We clearly understood the math, but we needed to understand the language. So we engaged Michael Maslansky of Maslansky, Luntz and Partners to help us with this portion. They found that the term “financial planning” was extremely disliked among clients. The term “retirement planning” was liked even less, and the term “retirement income” disliked even more than that. Think about the reasons why; when clients think about those terms, it usually conjures feelings of guilt over having not planned adequately enough. They shouldn’t have bought that boat or taken that trip; they should have been more disciplined in their savings. These are things that Maslansky calls “language landmines.”
Now that you know what terms to avoid, what term should be used to engage?
They came back by telling us to frame the conversation around lifestyle planning and personalized service. The problem is that there is an inherent contradiction in the advisor’s business model. It needs more clients and assets to thrive, so how do you achieve intimacy in that situation?
The answer, we found, is by tailoring. Tailoring is the intersection between personalization and expertise. You can have personalized service all day long, but if it isn’t done by an expert, what does it really matter? Through tailoring, personalization means that it’s personalized for you. It doesn’t mean that it’s exclusive and no one else has it. And it’s accomplished by an expert; not someone who is the end-all, be-all, but someone who knows what they’re talking about.