Planning potholes and banana peels

I once worked with a terrific wirehouse adviser based in Southeast Florida who suffered from serial honesty. Even in the heady bull market of the 1990s, he insisted on plotting retirement income strategies according to the 4% rule.

This was difficult at times for clients to understand, especially since many had quit their jobs and relocated from the frozen North because they thought they had plenty of money. Several abandoned him as tech stocks sizzled, while the clients who stayed were very happy when the bottom dropped out in 2000-01. Some people returned, humbled by the experience and with a better understanding of the adviser’s role. But not all.

One particularly spicy anecdote was about his meeting with a couple to finalize their plan. When the projected income and expenses were reconciled, the dreaded phrase, “You will have to make some lifestyle adjustments,” hit the couple hard. The dynamic turned sour, the incredulous wife turned to her husband and pounded him with, “You lied to me — you said we had enough. I just want to go out to dinner every night. Is that too much to ask?” Oh, my.

I have been writing a lot about the advice industry’s growing challenge with asset consolidation — how the aging boomers with five to six “relationships” will trim the list and create definite winners and losers.

Thus far, I’ve focused on the “happy face” of competition — the tactics for winning the consolidation war by doing things clients appreciate and fine-tuning your already popular practice. The to-do list is dominated by tedious reminders about regular contact, better planning, improving relationships and being proactive.

Flip the coin. There is a lot to be gained and big business to be won by making sure we remove the planning potholes and banana peels — the really big issues that can ruin the financial health of your clients. As clients live longer and face many potential risks, you can build on the anxiety created by looming retirement dates and volatile markets. In other words, change the dialogue from a sketchy capital markets forecast and the promise of an income you can’t guarantee and instead start planning the retirement journey by addressing head-on the potential disaster scenarios. You have plenty to choose from. If you can put big risks on the table, mitigating those risks becomes the focus, rather than beating the market or reducing your fees.

(More: Bad things happen to good clients — and your response is critical)

Three stages of retirement

Approaching retirement and sometimes even deep into that lifestyle, many couples have not planned for life when one of them becomes significantly impaired, and then when one of them has died. I’ll never forget the couple I met back in 1985 who at 61 and 60 were hoping to ride 11% interest rates off into an early retirement. Then we had the talk. “What if one of you can no longer sail in the summer up the St. Lawrence Seaway and ski all winter?” Major changes in the game plan followed: They relocated to a condo near their most responsible child and enjoyed nearly 30 more years together. But they did not accept that forward view right away. There was a three-week gap after that first meeting when I was pretty sure they had gone away.

The gap

There’s a growing hole in planning between retirement plans and Medicare. Funding the out-of-pocket costs of health care is a knowledge gap in part because many advisers lack good tools to estimate the shortfall. A staggering 80% to 85% of financial advisers do not provide full financial planning, making gaps like this one a huge area of risk — and an opportunity for alert advisers asking clients if they have “filled the gap” working with their current advisers. With more boomers entering the retirement phase, topics like this one will be shared by the first generation to move from work to retirement with technological proficiency and social media savvy. They will be talking among themselves about who helps them — and who does not.

The contingent liability

This is a big category of human warheads that come crashing into your clients’ later life. Many clients seem completely surprised by these financial bombs — but you shouldn’t be. The most popular threats range from the adult child boomerang — as a result of divorce, job loss or the scary growth of substance abuse — all the way up to an aging parent’s financial failure. I say that you shouldn’t be surprised because you have the professional perspective to know the potential threats, and too many clients live in the quiet hope they are not vulnerable.

Expose the pothole. One of the tools I found many years is Timing Evaluation Worksheet. It’s a super simple exercise to capture the names of all important people in your client’s life and a forecast of their ages going forward. Look for those points in time when trouble can arise. Do all your boomer clients know exactly how their aging parents will fund their retirements? Have they considered what might happen if a sibling or aunt or uncle or nephew or niece or cousin shows up one day at their comfy retirement home with no money and no insurance, in need of health care? And don’t get me started on the growing impact of financial fraud.

Your turn! Send me your favorite anecdote about a planning “pothole” or “banana peel” you encountered. These stories are priceless tools to help clients shake off their performance addiction and fee fanaticism and get real about the risks ahead. Send to: [email protected].

(More: Your client has a car, a gun — and Alzheimer’s)​

Steve Gresham chairs the advisory board at Cogniscient Inc. He was previously head of the private client group at Fidelity​ Investments and adjunct lecturer in public policy at Brown University. See more at thegreshamco.com.