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Similar to Managing Retirement Income Conference Presentation February 9, 2009
Similar to Managing Retirement Income Conference Presentation February 9, 2009 (20)
Managing Retirement Income Conference Presentation February 9, 2009
- 1. Addressing Clients’ Non-Financial Needs and Issues 5 th Annual Managing Retirement Income Conference February 9, 2009
- 2. Clients don’t want plans for successful retirements; they want successful retirements © 2009 David Glickman
- 3. Clients with failed Retirement Income plans don’t make good referral sources © 2009 David Glickman
- 4. © 2009 David Glickman PRODUCT OUTCOME PROCESS The Next Evolution In Retirement Income
- 5. Having a well-constructed retirement income plan is of no use if a client does not (properly) implement it © 2009 David Glickman Source: Adapting A Practice For Retirement Income Planning , © 2006 FMR Corp., pg. 10.
- 6. Relationship Issues © 2009 David Glickman MARITAL FAMILY Spouses with differing goals and objectives for retirement Desires or expectations to financially support family members
- 8. “ Psychological” Issues © 2009 David Glickman ATTACHMENT THE PROBLEM OF LARGE NUMBERS Irrational decisions based on strong emotional connections to money or its source Failing to appreciate the amount of savings needed to generate required income
- 9. © 2009 David Glickman Tools to Address the Non-Financial Risks of Retirement Tools to Address the Financial Risks of Retirement Current tools are not well suited to addressing these issues
- 10. © 2009 David Glickman A Case In Point Many advisors intuitively understand the limitations of analytical tools, but often lack alternative approaches to fall back on The Moral of the Story
- 12. © 2009 David Glickman Source: Behavioral Finance Forum Conference; Affective Communication: Engaging emotion to change consumer behavior when cognitive appeals fail Average Savings Rate: 10.9%
- 13. © 2009 David Glickman Source: Behavioral Finance Forum Conference; Affective Communication: Engaging emotion to change consumer behavior when cognitive appeals fail Average Savings Rate: 14.5%
- 14. © 2009 David Glickman This suggests that visuals and stories that appeal to clients’ affective thinking can be useful in addressing non-financial issues where cognitive approaches have had little success
- 15. Example: Over-Concentration © 2009 David Glickman Charles Prestwood , retired Enron pipeline operator, who lost $1.3 million in retirement funds "A lot of people have asked me, Charlie, why in the world didn't you get out? And my answer is one simple word: loyalty. Maybe I had too much in one basket. But who wants to get off a winning horse?" Sources: The Dallas Morning News, 12/19/01; St. Petersburg Times, 2/10/02; Photo: Thomas Nilsson
- 16. Example: Spending On Family © 2009 David Glickman “ You know the airline safety talk where they tell you to put on your own oxygen mask before you put one on your child? I tell my clients that the same thing is true with their retirement savings. If they don’t take care of their own needs first, then they might find themselves in trouble later on.”
- 17. Not all pictures will do the trick © 2009 David Glickman
- 19. David Glickman [email_address] The Retirement Income Practice Management Blog http://ripmblog.blogspot.com/
Editor's Notes
- Good Morning. Emily’s presentation left us off on the topic of client communications and that’s a great segue to what I plan to talk with you about – the Non-Financial side of Retirement Income. [Actually, I was at the gym last week doing my 45 minutes of cardio and watching the George Carlin special on PBS. I became inspired to change the title of my talk today. However, when I got home later I realized that “The 7 Dirty Words Your Clients Having Been Calling You Since October” didn’t really fit all that well.] We’ll be looking at the types of emotional and behavioral issues that often lead clients with Retirement Income plans to lose their way. And we’ll talk about the approaches, tools and practices which advisers can use to address them – both those that work and those that don’t. To start out, I’d like to propose two statements which I hope all of us will agree are self-evidently true, but which we don’t often talk about.
- First, from a client perspective… [Read the slide] We spend a lot of time focusing on and refining our planning processes and there is no doubt that developing solid plans for clients is absolutely critical. Nevertheless, at the end of day, when a client walks into an advisor’s office looking for help with their retirement, they are looking for more than just a plan.
- Second, planning alone really isn’t sufficient from the adviser’s perspective either. So while we don’t often talk about it explicitly, I think every one will agree that, [Read the slide] Build it and walk away is not a long-term viable business model (and fortunately, most people in our business don’t operate this way).
- What does this mean for us? As an industry we’ve made enormous progress over the years in moving the discussion from Product to Process, from Sales to Planning… This has been a good thing for clients, a good thing for advisers But I believe we will soon be adding a third dimension to this discussion… [CLICK] OUTCOME – What are the results of the plans we build? What kind of retirements do our clients actually achieve? A focus on outcome will more closely align advisers with actual customer needs.
- Now the concept of an Outcome focus has all sorts of interesting implications, however, today I only want to focus on one dimension – the idea that advisers can and must play an important role in assuring that clients actually stay on course with their plans. That’s why, from the very beginning of our work in Retirement Income practice management, we have consistently linked the concepts of planning and client management. In order to run successful Retirement Income practices, Financial Advisers need to recognize the many different types of issues that lead clients to go astray with their plans and have strategies and tactics in place to address them when they arise. Let’s start by looking at some of these issues -- In 2008, I was involved a series of focus groups with advisers from across the country in which they shared the myriad of issues that they face in effectively managing their clients. These issues fall into three major categories.
- The first category are issues and pressures related to spouses and other family members. Marital risk occurs when there is lack of alignment between the two spouses on the goals, objectives and requirements for success of their shared retirement plan. Examples: Failure of one of the spouses to stay within agreed to budgets Unwillingness to purchase LTC insurance for one spouse which would protect the living standard of other Making a Social Security collection age decision which ignores the impact on spousal survivor benefits Family risk typically involves providing financial support to family members which puts the retiree’s own financial well-being at risk. The emotional need to.. Invest in a family member’s business venture Pay private school tuition for a grandchild Set up an annual gifting program prematurely … can overwhelm the cold hard facts about what such an expense might do to one’s retirement assets and retirement income potential
- Another category of Behavioral concerns is associated with one’s vision and direction regarding their retirement. Lack of direction is generally characterized as retiring without a plan for how to spend one’s time. In some people this can lead to boredom, depression and eventually overspending. Others take up expensive (and sometimes dangerous) hobbies which were not envisioned when their income plans were developed. Day trading is a common one which can be both expensive and dangerous. [An adviser in Austin, TX even told us about a client who he thought had a death wish – started racing cars, jumping out planes, and doing other crazy stuff. I think his client might have been President Bush 41] Perhaps most challenging for advisers are the directionless retirees who fill their time watching and reading hours of financial media and who then want to act on the latest news they heard on CNBC.
- The last category I’ve termed “psychological” issues. [I’ve used quotes around psychological because I’m using the term in a laymen’s sense and don’t want to be corrected by the PhD’s in the room.] Attachment is a well known concept in the behavioral finance literature. It generally describes cases where strong emotional feelings of attachment or ownership get in the way of making rational investment decisions. Examples: Unwillingness to sell holdings given as a gift by loved ones Over concentration in company stock and unwillingness to rebalance Intense fear of running out of money resulting in: * Unwillingness to invest any portion of nest egg in equities to keep up with inflation * Desire to sell in the face of market volatility * Inability to spend/enjoy the money they have been saving for a lifetime The Problem of Large Numbers occurs when a client, upon reaching retirement, continues to treat their savings as a large pile of cash rather than a source of lifetime income. For many individuals, $1 million or more is such a large number that spending or giving away “only 20%” seems like an easy decision. Yet, the impact of such a decision on their future income can be significant.
- Advisers have access to well established tools and planning methodologies to address the financial risks of retirement – asset allocation models, income planning tools, budgeting program However, these approaches are often less effective in dealing with the emotional and behavioral issues we’ve been discussing. A complicated, analytical graph is no match for a grandparent’s emotional ties to their grandchildren. And yet, many advisers find that these are the only tools available to them when these types of client issues arise. [SKIP THIS TO IMPROVE CONTINUITY WITH NEXT SLIDE: There has been some work done on these non-financial risks – the Ameriprise “Dream Book” comes to mind – but I think it is fair to say that this an area ripe with opportunity.]
- Here’s a story which illustrates this point: During our focus groups, we met an advisor who noted that he prepared “extremely detailed financial plans” for his clients containing over 100 pages of graphs and analyses “ Of course, I wouldn’t ever take them through all the back up when we meet to review the plan because their eyes would glaze over. Instead, I think they just feel comfortable knowing that their plan is based on such detailed analysis.” We asked him what he did with clients when they began to waver from their plans. “ Well then I would show them the charts and explain the financial impact of their decisions.” … and how effective was that at getting them back on their plans? “ Not particularly,” he replied [CLICK, then read bottom of the slide]]
- Researchers have done some work that might help. [SUMMARIZE THE SLIDE] We are going to take a quick look at a recent study was conducted to compare the relative effectiveness of cognitive vs. affective information in assisting individuals with the decision of how much to save for retirement. Fully-employed MBA students in London were presented with a hypothetical retirement plan and asked about their intended saving rate.
- One group was presented with a numerical table showing how much they would accumulate at each savings rate.
- Another group was provided instead, images of apartments they would be able to afford in retirement based on their savings rate. [Describe nice apartment and living under a bridge] The results of the study showed significantly higher savings rates among individuals who saw the apartment images (affective version) versus those that saw the numerical table (cognitive version). The researchers concluded that when cognitive appeals fail, engaging emotion through the use of affective information can be an effective means of influencing behavior.
- From a practice management point of view, we can take the following away from this study: visual and stories can be effective tools in managing clients who are not following their plans due to the types of non-financial issues discussed earlier. In fact, when we talk to financial advisors, those who have had success addressing these issues often indicate that visuals and stories are a critical component of their approach.
- Let’s look at some practical examples. Take a client who doesn’t want to diversify a large company stock position in their 401(k). You could show them how it impacts the overall volatility of their portfolio or you might show them the chart of a company that took a precipitous fall. But you might have even better results even you tell them the story of Charlie Prestwood, the Enron employee who rode his winning horse from $1.3 million down to zero. Loyalty is a highly desirable personal attribute, but it can be a double-edged sword when it comes to your retirement.
- One of the advisers we talked to mentioned the relatively well-known airplane oxygen mask analogy as a useful tool for addressing family issues. You have to take care of yourself first, in order to be in a position to take care of others. These are just a couple of examples. Advisers who tap the reservoir of their own experience with clients will undoubtedly be able to generate many more. In fact, stories from your own experiences may be most compelling of all since they can be shared with deep personal connection and understanding. OPTIONAL INTERACTIVE DISCUSSION At this point, I’d like to open up the discussion. For advisors who have had to deal with some of the issues we’ve been talking about – Spousal, Family, Lack of Direction, Attachment and The Problem of Large Numbers -- : What approaches and tools have you used to successfully address these concerns? For any of these issues, have you used or can you think of any stories or visuals that might be effective?
- Of course, I don’t want to leave you with the idea that any old story or visual will do
- So in closing: Let’s never forget that clients want more than just plans… That advisers must play an important role in helping their clients achieve desired outcomes by always combining planning with client management… That the emotional and behavioral issues that often threaten to derail clients are often not effectively addressed by our established analytic approaches… And that both research and practical adviser experience points to visuals and stories as an often more effective tool set.
- Thank you.