Advisers: There's a client market where your help is sorely needed — it's called skilled labor, and it could see a bump in the ranks.
A recent story in the Wall Street Journal detailed a success story that most financial advisers don't see every day.
Twenty-four-year-old Justin Friend, the son of two academics, decided to obtain a two-year degree in welding from a technical college. Last year, he earned about $140,000 in income and did it without the ball-and-chain that many young people know as “student loan debt,” according to the article.
Mr. Friend's experience isn't the same as that of most welders, however. Median pay for welders in 2012 was $36,300 per year, according to the Bureau of Labor Statistics. Indeed, Mr. Friend takes advantage of the fact that he's both young and single. He works 72 hours a week, receiving overtime pay after he surpasses 40 hours a week.
President Barack Obama has also paved the way for a bump in skilled labor. Last week, he proposed making two years of community college free for responsible students, provided those students attend at least half time and maintain a 2.5 GPA. Mr. Obama has also proposed new American Technical Training Fund, which would award programs with “strong employer partnerships and include work-based learning opportunity.”
There's an opportunity for financial advisers should more individuals pursue a career in skilled labor, but it comes with its own set of hurdles.
“Many of them make a good living, especially early, but many don't have the same sort of projection on the increase in income over time,” said Kevin J. Meehan, regional president at the Wealth Enhancement Group.
BACK TO THE BASICS
With young skilled laborers like Mr. Friend, it's easy to get caught up in the amount of money they can make in the immediate term, particularly due to overtime. But that income won't necessarily continue to grow as rapidly over the course of that worker's career — especially if that employee is in a union and required to contribute a certain amount into their retirement plan, said Mr. Meehan.
That means it's important to talk to these clients early on about budgeting to ensure that they not only have enough for day-to-day expenses, but that they can create a backstop for themselves in the event they have pension benefits that could be adjusted.
“Let's say you're 30 and making a nice six-figure income in a trade, but your peer is 60 and talking about their pension,” said Mr. Meehan. “It's easy to believe that it's going to be the same for you in 30 years.”
"We counsel them that it could be different due to changing demographics, funding and shortfalls," he added.
RETIREMENT INCOME PLANNING
Tradespeople make up a small portion of Thomas L. Howard's client base, where an average client has between $500,000 to $1 million in accumulated assets. Mr. Howard is a wealth adviser with David A. Noyes & Co., and he's also the son of a union pipefitter and had put himself through school while working as an apprentice.
Advisers need to familiarize themselves with the terms of their clients' pensions and what they're able to receive in retirement. Laborers may have to leave the workplace earlier than anticipated if their line of work is especially physical, and that can affect the planning picture.
“One of the guys I had just been dealing with is a carpenter who retired early because of health issues, but he was able to get his pension,” said Mr. Howard. “His Social Security is going to be a big benefit to his wife who wasn't a significant wage earner, and she'll need that spousal benefit down the road.”
It's up to an adviser to tie together the possible streams of income that await the client in retirement and understand the client's pension terms. Does the client need to work a certain length of time or be a certain age in order to be eligible for full benefits? If that client is unable to do manual labor, what will it take in order to stay on long enough for that eligibility?
Mr. Howard referred back to his pipefitter father, who had been a project manager for most of his life and tried to work with his tools again after his employer went bankrupt. It was hard going, and the adviser's father took disability at around 60. “He had a marvelously secure retirement because of the length of time he had been in the union and its pension program,” said Mr. Howard.
On a more personal note, my father confronted a similar retirement decision when he became injured after decades of labor as a utility worker. At the time of his injury, my dad met the 30-year tenure requirement for full retirement benefits, but he fell two years short of the full retirement age under the pension's terms. In order to qualify for full benefits, he worked out a deal with his union and employer in order to perform light duty until he met the full retirement age.
There isn't a lot of help available to laborers who are making those kinds of calls, noted Mr. Howard. “A rep from the company that manages the pension fund might come in and talk about annuitization, but a lot of times people need more in-depth consideration,” he said.
SMALL BUSINESS CONSIDERATIONS
There's another opportunity for advisers as far as working with tradespeople, and that's the likelihood that today's plumber apprentice may eventually go on to open up his own plumbing business tomorrow.
“When I think of our wealthiest clients, it's tradespeople who became business owners,” said Mr. Meehan. Those clients know what it's like to save as much as they can toward retirement be it in a required contribution to a pension or in a 401(k) elective deferral — and they know they can't work forever. That conservative savings habit tends to stick.
“They live more conservatively, often because they don't think the money will keep flowing,” Mr. Meehan said
Mr. Meehan said his firm has met business owners through centers of influence, such as accountants and commercial bankers. The firm helps these small business owners — groups of plumbers or electricians — open qualified retirement plans.
“It's more the tradesperson who became a business owner and asks for help with retirement plans,” said Mr. Meehan. “We do a lot more teaching. These people want to feel like someone cares enough to walk them through how these plans work, rather than dazzle them with investment acumen.”