Originally posted at financial-planning.com , by Amanda Schiavo.
The decumulation phase is a major life transition for clients, in ways they may not be considering, as well as a new business phase for most advisors. As with any big transition, though, there’s opportunity.
Navigating this new phase so both the client and advisor can benefit was the topic of the most recent Financial Planning webinar. Rob Comfort, President of CUNA Brokerage Services, and Sheryl Rowling, head of Rebalancing Solutions for Morningstar and principal of Rowling & Associates, discussed how advisors can best to prepare their practices and clients for this next stage.
Both panelists agreed that going beyond the traditional advisor/client relationship is paramount for a successful practice and a more enjoyable retirement for your client.
“Not only is it going to be good business, or necessary business to get to know clients more at a life level, especially retired clients or pre-retired clients, I think it’s something that the regulators are going to expect,” Comfort said.
Taking into account the spirit of the DoL rule and looking at where the business is heading, having a more life-focused interest in clients and what is important to them on a deeper level, beyond their financial needs, is going to be “critical for success” in the future, Comfort says.
CREATING DEEPER CONNECTIONS
Advisors will want to get their clients the greatest “return on life,” Comfort said, referencing a phrase coined by author and lecturer Mitch Anthony.
“That return on life is not just the financial advisor saying ‘you’re not going to run out of money,’ or ‘I’ve got you properly protected,’” Comfort notes. “It’s also saying ‘how can I, as the financial advisor, help you get the greatest return on life’ and really positioning yourself far deeper into the lives of our clients than has historically been the case.”
The first thing an advisor can do is build a network of trusted professionals in order to be able to help your clients on key life issues beyond finance. If a client has an interest in health and nutrition, an advisor may want to get to know an expert in that area to whom they can refer a client. But advisors should take care not to become an expert on that subject themselves, he said.
Get to know clients and their personal interests, but be mindful of the reason they are coming to you in the first place. You don’t want to become the person they call for expertise on the best exercise regimen for people over 60. If that becomes the case, you’re opening yourself up to a heap of potential problems.
“It’s important that we have to go much deeper at that life level,” Comfort says. “But we have to be cautious not to be advisors in areas where we don’t necessarily have a real expertise, or a licensing to do so.”
Other steps advisors can take would be to build a connection with the children of retired clients. This helps in understanding current clients better, as well laying the foundation to bring in the next generation and grow your business.
Creating fun networking opportunities for retired clients to connect with each other is another strategy Comfort recommends. In the same vein, having a diverse board of retired clients that an advisor can learn from is a good way to find out what’s important to retirees and what they are looking for at this point of their lives.
“Client advisory boards are some of the most effective things that advisors can do as they want to grow and succeed in this business,” Comfort says.
BUSINESS CHALLENGES AHEAD
The impact of decumulation goes beyond just the retiree. Sheryl Rowling spoke about the impact of this phase on advisors and their businesses, specifically how millions of baby boomers taking their withdraws are picking away at an advisors’ AUM; and how to keep a business alive in this environment.
“As advisors, it’s very rewarding for us to see our clients accomplish their goals and be able to retire,” Rowling says. “On the other hand, they take monthly distributions, our AUM decreases, our revenue decreases so while our clients are reaching their goals we are facing a challenge of possibly earning less money.”
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In order to counteract this and survive, Rowling came up with a four-point solution plan that includes increasing wallet share, targeting the next generation, increasing marketing, and changing your fee structure.
“Advisors are at a point in our business lifecycle of having to really examine our fee structure,” Rowling says.
Advisors now are charging based on AUM, reporting on performance, and giving away other planning services. The issues with these tactics are that AUM declines as clients retire and advisors aren’t charging for their greatest services.
Rowling suggests advisors consider billing on total wealth, retainer billing, and combination billing. “You’re really not going to gain clients by saying ‘I have the magic formula for creating higher returns than anyone else…and that’s why I can charge more.’”
Amanda Schiavo is an associate editor for Financial Planning. Follow her on Twitter at