Re-Evaluation Transforms Future Plans for Many Boomers

Baby Boomers – generally considered to be those born between 1946-1964 – are living longer, living stronger and feeling perennially youthful. Thus, things like fully retiring from work or moving to a 55+ community is not part of the plan for many Boomers.

However, as they recover from and come to terms with what has been a worldwide pandemic lockdown, many are questioning “what next?” Discussions around sabbaticals are taking place for those who are working. Reviewing their investments as they consider new experiences is going on. Suddenly, increased (but still not full) freedom from confinement is fostering Boomer thoughts and planning.

The money has to last

One key question I've heard being asked is, “can we afford to make more radical lifestyle choices?” or “we have at least one more big adventure in us, but can we afford it?”

In the past, an adviser's value proposition to a client was being there to navigate the client through the ups and downs of their financial affairs and arrive at their intended goals and objectives.

There is a growing expectation (and indeed some pressure) on financial advisers to provide advice that opens doors for these investors who are living longer, remaining healthier, and wanting to fund their remaining years and adventures without damaging overall wealth creation. The money has to last.

For so long, the achievement of core financial and lifestyle goals by a normal retirement age has been an advisor's measure of clients' successful financial planning experience. Yet as life journeys change, advisors are recognizing the need to provide different kinds of advice – basically a sort of life coaching session rolled into talk of investments.

Too, there is an expanding expectation on advisers to provide strategic advice, whether that be in wealth creation or planning around unforeseen future events. As a result, advisor-client meetings have changed. Clients are sharing more of their hopes and dreams, placing advisors in a much more intimate role with them.

Case study

Genna, a senior financial advisor, recently shared a typical scenario with me. Her purpose was for me to see and understand the new challenges facing advisors. People are thinking outside the norm.

Dave and his wife had spent months in lockdown, unable to visit family, and decided to take a long hard look at the life goals they had set for wealth creation. They explained to Genna that they had decided to upsize (and not downsize) to a home with land and water frontage to run a short-stay facility for burned-out executives.

In their minds, these plans were life goals that still needed wise investment but not simply for wealth creation to the same degree as before.

Dave expected Genna to be as excited about their change in plans and have open conversations leading to an adjusted plan that would allow him and his wife to carry out this new blueprint for their future life and wealth creation.

But from Genna's perspective, they were working to a set plan linked to specific investment advice and shifting the parameters needed to be explored. Genna already knew that Dave and his wife had some spirit of adventure but were not high-risk takers. Dave was more comfortable with risk but always acknowledged his wife's low-risk tolerance.

On the other hand, Genna was very comfortable with risk and knew there was a temptation to make investment suggestions that would potentially increase their wealth but could also result in later regrets.

Questions, reflection, new direction

She asked them questions:

  1. What goals would be the most important for you to achieve in your life right now?
  2. How would you like the financial planning process to be managed?
  3. How do you plan to build your wealth from this proposed venture?
  4. How confident are you in making financial and life decisions given this proposed change to your life?

Their responses were emotional, determined and passionate, leading Genna to realize that she needed to manage their expectations. She began referring them to the behavioral finance reports they completed at the beginning of the advisor-client relationship.

The behavioral finance principles that Genna's company used showed the couple's propensity toward safety, planning, and having clearly defined goals. And yet, an unexpected life event – in this case a pandemic – caused this couple to reach way out of their comfort zone and potentially make decisions which, again, they could later come to regret.

After much discussion, Genna determined that the couple's plans were not solely for the short term; they were seeking advice on the suitability of this new “adventure” investment, taking into consideration their ongoing income needs, risk profile, and continued wealth creation for when they did eventually retire.

Genna was able to manage their decision-making and work with them within the parameters of their known behaviors to rework their life and investment plan to deliver a financial plan for the next season of their life

Understanding money behavior

Behavioral finance principles integrated into financial advice are critical to understanding how people behave, what drives their decision making, what environmental “noise” impacts their decision making, and how to offer advice that informs by taking all of these variables into account.

What is becoming clear is that the more clients and advisors grow in understanding behaviors, the more the financial world will be better placed to navigate the kinds of life changes these Boomers want to make.

Behavioral finance – and not just the former, long-held narrow definition of it – must be taken seriously, and not just in the financial services industry. Not only would its principles improve customer financial awareness because they'd know why they make the decisions they do, it would also make for more effective and longer-lasting client-advisor relationships – across many industries, organizations and platforms.

Related: 'Normal'​ Has Changed, And So Have Your Clients