Bull markets are like rivers, the saying goes. Most begin small, quiet trickles that build to a stream long before bursting open with impressive size and power. Go with the flow, we also say. I am no market sage, but I’m seeing one bull running out of steam while another river is building. And I’m on mission to ride that wave…..
The epic bull of 2009-2022 flooded portfolios with gains unlike anything in modern time. Rushing out of the gloom following the Financial Crisis, the early flows were strong – a sign perhaps of the historic gains ahead.
Stock Prices: The Bigger They Are, The Harder They Fall
On March 6, 2009, the Dow Jones bottomed at 6,469.95. Here at Labor Day 2022, that familiar market index rests above 31,000 – a 5X gain even after the inflation correction from 36,952 in the first week of this year…and whatever is happening now. That first correction was about 20% across the market – a “normal” event in our capital markets bible – and we have a nice bounce this summer that has restored some confidence the bull has room to run.
Top advisors know better. They have seen this movie before – 1987 in bonds, then stocks, the shock to the 10 year in 1994, the Tech Wreck in 2000-2001. And the Financial Crisis, when values fell in half.
Protect My Income Please
If you were contemplating retirement in 2007, exiting the market at the same time would have been a good short/intermediate term call. Waiting a few months crushed your account value. And this is the moment we often misunderstand as an industry. We are quick on the trigger to say, “Stay the course, you have decades to live!”. And that may be true, but it’s a tough call for someone not in our world who may not believe they have that generous time horizon. When you are no longer drawing a paycheck, a 50% drop in your retirement account is financially and emotionally devastating.
Chances are you know one of the lucky ones – and also one of the less fortunate. My late father surprised me by saying he had fully annuitized his modest retirement account when the Dow hit 13,000 – with no knowledge or expertise. He thought it was just “enough”. He passed away in 2016 never regretting his move – as well as the decision to convert all of his retirement annuities (he was an academic physician) to two life annuities that my mother relies on today at 88. His primary objective was to protect – to protect his family, his lifestyle, my mother. No amount of potential opportunity was worth the risk. He shared stories with me about friends of his with far more assets that were investors and loved the “action”. He never had any interest – neither does my mom.
A Little Empathy Goes a Long Way, and it Starts with Clarity
Regular readers know that I rail about our industry’s obtuse language, awkward procedures and regulation-driven communications. Our Executive Board at Next Chapter recently met and the directors unanimously accepted the challenge posed by Ken Dychtwald and seconded by John Thiel that we have to clean up our act – and language matters. More to follow for sure, because the admonition is not just to deal with current friction points, it is to help the industry prepare for the future. A glorious one at that – if we can pivot.
There’s A New Bull Market in Town
The OBM (Old Bull Market) was a historic opportunity to grow assets. The New Bull Market (NBM) is about protecting those gains. The winners in the OBM ignored market volatility and rode on. Many of the top OBM advisors kept clients invested to max out the market’s advance.
In the New Bull Market, many of the winners will have to ignore the anxiety of retirement and live on. The best advisors will now keep clients on track to max out their accumulated assets. In the Old Bull Market, you could get away with leveraging bullishness with options and margin. In the New Bull Market, you need to explore protecting client assets with insurance, annuities and credit.
The Old and New Bulls require a different perspective. In the Old Bull, you focused on the future. In the New Bull, you focus on today—and maybe tomorrow. In the Old Bull, you were a guide and a coach, leading the team. In the New Bull, you are still leading, but now you are more of a problem solver and a therapist. And the clients are mostly the same clients, though the typical one is now surrounded by three generations of family members you need to include.
A New Bull Market for a New World of Advice
The opportunities of the New Bull Market were created by the changing priorities, objectives and concerns of today’s investors. You know about the age wave of retiring baby boomers departing the workforce at 13,000 per day. They tell researchers they worry about five things:
- Paying for healthcare
- Outliving their money
- Falling markets
- Unexpected big bills
- Remaining independent (with a healthy brain and body)
These concerns form the basis of a New Bull Market advisory practice. In the old market, you were helping clients grow assets for unknown future costs. In the new market, the costs are increasingly known and you may have to stretch clients’ assets to meet those costs. In the OBM, you made investments and hoped they worked out. In the NBM, you create solutions that have to work out.
The winning advisors in the new market will earn their success. There are new tools they need to use to help clients through those five worries. New Bull Market winners will know the answers. They will be able to rattle off their most common solutions quickly and with confidence. That confidence will be a welcome contrast to advisors stuck in the Old Bull Market mindset. The leaders are now sharing their perspective with clients—on retaining assets, consolidating assets and earning referrals.
Industry veteran Tim Seifert, head of Retirement Solutions Distribution at Lincoln Financial Distributors, makes the business case for protection. He points out that we look to “planning” to establish the basis for a relationship with clients and their families. And that is the bedrock for sure. So much easier to confront falling account values in the context of their actual impact on a retirement plan. Seifert quotes data showing dramatic increases in asset consolidation for advisors that plan.
Don’t Underestimate the Value of a Good Protection Plan
Seifert’s point – echoed by top advisors I have interviewed recently – is that adding “protection” to that financial plan is a critical, additional step to locking in those relationships. The bull market in retirement is creating a new bull market in strategies designed to protect clients by leveraging their assets to better meet the as yet unknown demands of stuff that just happens – to most everyone. And protection pays, according to Seifert, who again shows data proving that “protection” added to “planning” is near fool proof practice management to retain and grow client relationships, assets and referrals.
With a protection focus, you will be talking about these opportunities – and solutions:
- long-term care strategies
- Longevity protection
- Protected income sources
- Liquidity through security-based lines of credit
- Financial wellness
Advisors who solve for the five needs will then face a second dimension of opportunity created in part by the bull market—scale. The Pareto principle is alive and well in financial advice: Fewer than 20% of clients will receive “full service” and even fewer will get complete financial plans. Clients are typically scattered across four to six providers—another outcome of the Old Bull Market. I’m betting that some clients really like their investment advisor. And why not? A 5x gain investment gain? Woo-hoo!
I have an even more sure bet that both clients and their families whose advisors also offer protected income, protection of liquidity, protection of long-term wellness and stay vigilant about those concerns will love their advisors and reward them with their assets, their family assets and their referrals. And that is a Bull Market I’d like to see!
Related: Retirement on the Eve of Destruction