I recently interviewed an experienced financial planner to discuss how financial planning and the advice people need has changed in The New Normal.
George: What was your work like when you first came into the Financial Services industry?
Financial Planner: It used to be so much simpler in the Old Normal when the norm for my clients was to predictably retire at 65. We all knew what retirement was supposed to look like. Retirement planning and investing were much less complex because of several factors. Entrepreneurism was not as prevalent. It seemed that most employees worked for large companies with pensions, retirement and healthcare benefits which are now almost obsolete. The gig economy and freelancing didn’t exist as it does today. Most people only had one long term job and source of income. Investing back then was mostly accomplished through buying stocks, bonds, and mutual funds. Tax shelters were popular and would allow for generous write-offs against income. Insurance provided additional protection. At a specified retirement age, corporate employees could count on lifetime income payments from their employers and from Social Security. Future income was more secure and much of it could be known in advance, which made financial and investment planning much easier.
George: What was your process then?
“The old process” wasn’t a formula that investors could mathematically grasp and was often not the objective. We had some software that could calculate inflation-adjusted future income needs above and beyond the expected entitlements, so targeting a dollar amount and growing enough savings to generate that income was based on assuming a rate of savings and a rate of return. Most investors were just looking for ‘growth’ or ‘more money when I retire’. When the stock market was strong, discount brokerage firms became popular to ‘do it yourself’, and even speculative day trading was a bold way for investors to try to aggressively making money without a clear plan. Financial planners are more valuable now than the vintage stockbrokers because more planning and managing is involved, and clients don’t generally have the time or inclination to make constant decisions given the complexity of today’s markets.
George: What’s so different now?
Financial Planner: Where should I start? Welcome to the New Normal. For openers, not everyone will be able or want to retire. And their population segment is growing dramatically. Retirement is not homogenous and now has many faces and stories, as brought home to me by your recent blog. Not only is there a retirement savings deficit, most people after 50 don’t have enough years left to simply save their way out of the hole. Where our money comes from isn’t homogenous now either. It’s not just about jobs. I read a statistic that 50 million Americans are generating a billion dollars through freelancing, both full time and part time. Institutions are providing a much smaller portion of what retirees can count on. Most retirement savings are based on our own contributions and are more susceptible to falling short. So many sophisticated investment vehicles have been developed using complex technology that clients can now be very specific in their objectives and find a customizable way to work toward goals. Diversification is far broader because of so many securities and opportunities created in different industries and commodities that were previously only available to large institutions or not available at all to an average investor. The types of relationships that investors can have with advisors, compensation arrangements, and the tools that we can provide have all evolved and multiplied. The financial services industry has become less focused on transactions and more focused on professional management and planning services that were once only accessible to very high net worth individuals.
George: Do you have any recommendations for your fellow financial advisors?
Financial Advisor: In the New Normal we advisors need insight into the minds, lives, and futures of a new breed of empty-nesters, the realities of the generations coming up behind them, and what they are all actually facing in the coming decades. It’s like clients first need an adaptable, phased life plan that informs our financial planning instead of the other way around the way it used to be. I love the concept that “Retirement” isn’t about a single transition or phase of life any more. It’s about accepting and adapting to a lifetime of transitions. Financial advisors need to be reminded that people over 50 in real life don’t fit into stagnant profiles or static investments.
Our professional world has already shifted because our clients’ realities and futures are so different. These people are amazingly diverse. With the popularity of fee-based investment programs, we financial advisors need to develop a full set of ongoing financial planning skills instead of relying on a circumstantial or transactional type business. We may need to find a very qualified life planner with whom we can form a team. Our ability to add additional value lies in being part of a larger planning effort. Once the team is in place, the life plan, the financial plan, and the financial status will have to be reviewed annually together, not just a review of financial performance.
George: Thanks for talking with me.
Financial Advisor: It was a pleasure. Come back any time. And when your new book about all of this comes out in August, I’ll be in line to buy one.