Retirement on the Eve of Destruction

The year is 1965. Vietnam, racial tension, and voting rights are all over the news and both the Cuban missile crisis and the assassination of President Kennedy are open wounds for most Americans. This is crazy, we’ve had enough, said the youth of America now also facing the draft for a conflict they decried. Songwriter PF Sloan put their anger to music with the “Eve of Destruction”. Radio stations around the world banned the tune and some in the media said it represented everything wrong with America’s youth. 

That youth was the Baby Boomers. And they are frustrated again. This time the object of their  wrath is not challenges to their youth, it is to their age. They are worried about being able to continue their independence in retirement. Why is this so complicated??

Beware the Boomer

The demographic wrecking ball of Boomerism has been steamrolling industries for sixty years. Ask Detroit, Sears, Sony, IBM (Wang?!) and AT&T (the original version). Don’t mess with these guys. They want it their way and they reward businesses that step up. If you don’t – ask Blockbuster or an Oldsmobile dealer what happens. Right, you can’t….

What is particularly interesting about the current environment is that as a society we possess insights and tools more advanced than at any time in our history and yet we continue to be dogged by a pace of change more consistent with our past. That feels to me like a “will” issue instead of a “skill” issue and therefore completely in our control. 

Good Results on the Surface, Weakness Underneath

The pandemic has not helped. COVID accelerated some areas of demand – health care, retirement, virtual meetings and a hybrid workplace – but at the same time seems to have slowed the reaction time of companies, which depend more than they realized on in-person interaction. Inertia of existing systems and mostly supportive markets have been supporting company earnings, but the underlying weakness is clear when we examine organic growth.  I’m not sure when and how corporate leaders will regain speed. Urgency is hard to muster when you have good earnings but the changes needed to adapt to hybrid work are underestimated. 

Three Forces Already Ahead – 

Three essential components of our advice world are now wildly changed from their status pre-pandemic and even from a few months ago. Reactions abound, but so far more talk than action.

  1. Investing – the ink is barely dry on most obituaries for the 4% rule and now there’s a 4% T-bill again and a 5% CD. Inflation is a lot higher but haven’t we seen this movie before? Wait a minute – no – most financial advisors have no experience at all with meaningful levels of lost purchasing power. Didn’t adjustable rate mortgages just reset to DOUBLE? Is my oil bill the only one that is significantly higher? And electric, and property tax, and eggs and just about everything you buy?? You know who does remember inflation? Baby Boomer retiree clients. And it’s a bad memory. The winner products will answer the questions being asked now by clients – What is the risk? How will this product help me achieve my objectives? Planning has replaced investing as the driver of retirement success, yet only a small minority of advisory firm clients nationwide say they have a financial plan. What are the chances an advisor can hold on to clients content not to know what they will need – until they need to know?
  2. Growing the Practice – Everyone’s talking acquisition. And that’s a strategy but it’s not organic growth. The lesson learned by other Boomerized industries is that when you start buying growth instead of creating growth you quickly lose the ability to create and to innovate. Big Pharma has this disease and it’s palpable. In a rip roaring bull market for the advice provided by good advisors (see more ), good advisors and their firms are indeed winning business from competitors. What are they selling? Protection. Preservation of hard won gains, careful planning to survive retirement, limiting the risk of outliving your money, protecting against the costs of healthcare. “Growth” is a new game but the metrics of success are the same – if you aren’t earning net new assets (retention + consolidation) and higher share of wallet, you are in decline. Period. You don’t see Fidelity, Schwab, Vanguard buying books of business and laying off HQ staff. Just sayin’….
  3. Leading the Business – Holy cow. Where do you start with the new realities of business? Large firms and small have been turned upside down by workplace preferences, training challenges, development issues, diversity requirements and expanding customer service needs. Not to mention the retirement wave of older advisors and the lack of interest from young people. “Leading” is a much different vocation than “running” the business. The myriad demands of the current workplace have even the most skilled execs scratching their heads, which indicates real trouble for financial services types that are too often just older portfolio managers or sales folk. I saw a pretty solid investment firm nuke three long-time employees a few weeks ago because of “the market”. For the record, that market is still multiples higher than it was for nearly all of the careers of the terminated professionals. So what happened? Beware the “margin defenders” – they are the least capable of handling the new leadership realities. Remember when Ford President, Bob McNamara shot down the idea of smaller cars? Innovation, creativity, genuine interest in the business, genuine interest in people – all are characteristics of the new leader. If you don’t have what it takes, go back up to #2 above and find a buyer. 

Pareto’s Revenge: Embrace the Middle

Savvy advisors and their firms are indeed on to these issues. We call those people “winners” because they look at the market realities and take action – and take advantage. GM vs. Toyota and BMW – how’d that turn out? Why is it that separate organizations of very smart people can “see” completely different future paths? Is it just their love of current success? One clue has always been to see not how the best clients are doing – or feeling or saying – but to look at the middle. How does the average client, the typical client, the median client fare in your current state? Too much focus on the top avoids the reality check of your depth and breadth. Even in a single advisory book. Retirement is a complex array of dates and needs that are defying many advisors’ ability to keep up. That’s trouble for sure – and a historic opportunity for growth minded professionals who are prepared to offer an alternative. 

One Upping the Boomers

Destruction is only bad if the object of destruction is worth retaining. The 1965 song called out Vietnam, the draft, the threat of nuclear war, discrimination, Middle East conflict – nothing good according to most everyone of any age. 76 million American Baby Boomers would now add their fear of aging poorly and poor. But take note – the rising cohort of Millennials is actually bigger than the Boomers and has its own list of complaints including climate change and diversity. They will shape the world as their parents have with impacts already visible in banking, electronics and retailing. And they are new growing power in financial services.

Where Boomers and their Millennial kids are joining forces today is around simplicity of process and the assurance of better outcomes. The Boomers pressed for change like ATMs and toll free telephone numbers while their offspring double down on access and ease with mobile apps and simpler products. What Boomer expected brokerage commissions of zero and ability to send your own wire transfer? Millennials expecting both are also asking why can’t results be guaranteed? Every generation sees injustice in the current state and first finds its voice sharing its frustration with its parents. Demand more, they say – and they are right to expect better. Retirement is a family affair, and the Millennials will be riding shotgun for their parents and deciding which advisors and firms will be their choices when they have more assets. Top advisors seeking growth for years to come are including these important consumers into the plans of their current clients and have the lead for retention and future growth. Follow another winning consumer formula – simplicity and ease of use – and see how Apple products appeal to both generations or how easy both find the Minute Clinic at CVS. 

Related: The Client Is Not Always Right