Three blind wealth management execs and the demographic elephant

As the advice industry stares at an increasingly uncertain future, the famous parable of the elephant and the blind men is worth revisiting. The narrative depicts three men confronting an elephant for the first time. Being blind, each man feels for clues about the enormous creature. They share their perceptions, but their accounts are wildly different for each has grabbed a different part of the elephant. One feels a leg and “sees” a tree. One feels the massive body and “sees” a wall. Another feels the trunk and “sees” a snake. The differing accounts and the ensuing acrimony about the “truth” spurs a fight among the men. In “Coping with Negative Life Events,” authors C.R. Snyder and Carol Ford explain the moral of the parable as the tendency for humans to claim absolute truth based on their limited, subjective experience as they ignore other people’s limited, subjective experiences, which may be equally true. Sounds like 2020 presidential politics to me.

New conditions challenge everyone. The tendency is for managers and leaders to depend too heavily on the experiences and perspective they earned on their way to the top. But in times of unprecedented change and uncharted waters, all that “experience” can be a blindfold. The three men in the Hindu parable aren’t stupid – they just can’t see. What they all have in common is the inability to see the total picture and to fully understand what is – literally – right in front of them. And the fact that all three are stuck on their separate perceptions makes it impossible for them to work together.

For leaders of the wealth management industry, the aging demographic is our elephant. It is planted right in front of us, everywhere and every day. And yet it is hard to see it, as well as all of its implications for our business, in its entirety. Depending on the primary focus of your day job, you may have one perception of “aging” that is quite different from that of another leader whose primary focus is elsewhere.

For example, if your firm manages separate accounts and mutual funds, your portfolio managers can be happily beating the market while you might be frustrated by redemptions. Upon closer examination, the redemptions are skewed to clients over 70. We hear a lot about 10,000 baby boomers turning 65 every day. Some of them have been investing for retirement – and that retirement has arrived. Surprised? Really?

More subtle are some other “parts” of the elephant. Stay with the daily flow of boomers but now focus farther downstream on the 9,500-plus who turn 74 every day. Nine years deeper in that classic retirement zone come more problems – dementia, diminished capacity and death. Thousands of clients are losing their ability to safely manage their accounts every day. And more and more clients are dying every day.

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Ask the compliance department of any big firm about the growing challenge of protecting aging clients. Ask the investor services groups about the spike in reregistrations due to death or disability. Check in with sales teams, advisers and customer service reps about the scramble to locate responsible family members because clients haven’t shared that information (or we haven’t asked). What does legal see on the litigation and arbitration calendar? Government affairs can tell you a lot about growing regulatory scrutiny – especially from the states.

There are lots of legs and tails and tusks on the demographic elephant that have been there all along. What has changed is the size of the animal. For years, the aging demographic wasn’t an elephant, it was a poodle. Or a golden retriever. It had legs and a tail, but it was smaller and softer, and more friendly. But now we have an elephant in the room. Adjustments have to be made.

And we cannot fully enjoy the parable without pointing out that not only has the size of the animal changed but so has the environment. All of these elephant parts were solidly attached before the market correction. Stretching our story a bit, imagine the blind men trying to identify the elephant during a stampede. The guy holding the trunk might have a grip but the one on the leg is a casualty. Hang on tight, the “stampede” makes all these issues more acute, and more complicated, and harder to resolve under the pressure of rising volumes.

Unfortunately, we’re not going to cage this elephant anytime soon. There is a reason Ken Dychtwald coined the term age wave (in 1990!) – this phenomenon is still in the early stage. Its roughest effects are growing and will continue to grow at an increasing pace through 2035. That time period captures pretty much all of the current wealth management industry leadership, so best we get started. Future industry leaders are the ones who will pull off their blindfolds and demand the same of their colleagues. They will understand their business just might be defined by how they respond to the elephant. And the stampede.

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Steve Gresham is chairman of Whealthcare Planning, senior education advisor to the Alliance for Lifetime Income and co-chair of The Future of Financial Advice initiative at InvestmentNews. See more at thegreshamco.com.

Related Topics: Client Servicing, Elder Fraud