Retirement drawdown is a top focus among advisers who have a preponderance of baby boomer clients, according to Cerulli Associates Inc. Here are five tips for managing your practice through this phase.
Assess your client base. Chances are that a high percentage of your clients rest in the baby boomer demographic. We all know the statistics: 10,000 baby boomers turn 65 every day and this trend will continue for another 17 years. Not only are they living longer, many have failed to plan adequately for a retirement that could last 20 or 30 years. The Centers for Disease Control and Prevention reported that the average 65-year-old can expect to live to nearly 84. Reports point to the increasing risk that these retirees will outlive their nest eggs — nest eggs that make up your assets under management.
Equally shocking: More than 45% of high-net-worth investors are over 60, and most have underestimated their lifespan.
Determine the potential impact on your revenue. As you and your clients get older, there is the likely risk that they will draw down their assets to maintain a particular standard of living and fund increasing health care costs. A number of these clients will be members of the “sandwich generation,” facing further asset attrition as they usher their children through expensive college educations and finance aging parents. The effect on your business could be substantial.
For the sake of argument, let's say you manage $50 million in assets for clients 65 and older. If you receive a fee of 1%, that's approximately $500,000 in gross revenue in a year. However, AUM declines at an approximate rate of 5% per annum as your older clients spend down their assets.
Attrition takes a toll
This equals an approximate attrition rate of $2.5 million per year in AUM. What does this do to your revenue and to the value of your business in the eyes of a potential successor or buyer? At the end of five years, your gross revenue declines $114,000 to just $386,000, to the detriment of the viability and salability of your business.
In essence, your clients' retirement has an impact on your own retirement. Let's continue to look at other tips to attack this challenge.
Look beyond financial advice. Create a comprehensive wealth management experience and extend service offerings beyond investment advice and
financial planning. Services such as
trust and
estate planning appeal to your baby boomer clients and solidify your position with the next generation, as well. Learning more about your boomer clients helps you ask them the tough questions they need to answer while they are still able.
This is especially true when it comes to helping the older generation plan for the future of the next generation. Ask yourself, “If something happens to my client, will I be the first person their son or daughter calls?” The children and grandchildren exert tremendous influence over their parents, and mom and dad may find themselves persuaded to investigate another adviser on behest of junior if you haven't made a solid impression.
Take a closer look at younger generations. Experts predict that the baby boomer generation will pass an unprecedented amount of wealth to the generations that follow. Thus, you cannot afford to neglect Generation X and Generation Y investors, who have a tremendous need for financial literacy, legacy services and advisory guidance. Include them in the conversations, invite them to client appreciation events and place them on your mailing list.
Become your clients' trusted adviser. Clients look for value in an adviser, wanting to make certain that they get the services they pay for. By demonstrating clear value to your clients, you help solidify the relationship.
When your clients view you as a valuable and trusted partner in the relationship, they are more likely to move their assets to you to manage and become a source of referrals. The consulting firm Advisor Impact's Economics of Loyalty study shows that “share of wallet” and client-driven referrals significantly differ as clients move from complacent (no trusted adviser) to engaged (trusted adviser). Content and engaged clients do significantly better than complacent clients when it comes to the adviser's managing 75% or more of the assets.
Building a successful practice when your clients are in the process of spending down their assets is possible. Ensuring that your clients — and the subsequent generations — understand the value you provide is the key to your growth and success.
Matt Matrisian is senior vice president and director of practice management at Genworth Financial Wealth Management.
