- 4-Minute Article
- Oct 20, 2017
What Clients Need for Retirement and How to Help Them Get It
The Insights Panel from Brighthouse Financial looks at retirees’ needs.
Retirees are living longer and enjoying more active later lives than ever before. This has created new challenges for the advisors who are trying to help their clients meet their needs for retirement. The Insights Panel, a group of leading independent experts brought together by Brighthouse Financial, discussed these challenges and made practical suggestions for how to overcome them.
In the future, financial advisors will need to service client needs at a far more specific and individual level, said Futurists and trend consultants Jared Weiner and Erica Orange.
This is because the strength of the one-to-one relationship is where advisors have an important advantage over new, low-cost providers like robo-advisors and personal advisory services.
The problem, as Jared and Erica see it, is that the client data available to advisors now is too generalized to give useful insights into the lives of pre-retirees and retirees.
“A lot of market researchers and segmenters will basically view the 55-plus or the 65-plus market as one megalithic whole,” said Jared.
They said that advisors will need to learn how to gather and analyze data about clients and prospects, which will enable them to create a more personalized offer.
If clients' needs are becoming more diversified in retirement, so are their ambitions.
Two trends are driving a revolution in how Americans think about retirement. The first is that we are living longer and enjoying much better health and vitality than ever before. The second is the importance of staying busy,1 which we link to being respected and successful.2
If advisors want to truly understand their clients’ needs for later life, explained Jared and Erica, they will have to start looking beyond their finances to their sense of meaning and purpose in retirement.
“These are not independent from financial security, but oftentimes we put them on the back burner,” said Erica.
Advisors need to help clients understand the values that motivate them in retirement, said Jay Mooreland, client behavior coach and author of The Emotional Investor.
“I think the easiest way to describe values is that they are emotional states that drive our behavior.”
Jay suggested that advisors ask “value questions,” which will allow them to “dig two or three layers deep” to understand their clients’ emotional needs.
For example: “If you could go back, what one financial decision would you change?” A follow-up question would be: "What could we do better going forward to ensure that doesn't happen again?"
He explained that understanding clients’ values enables an advisor to help improve their decisions by uncovering contradictory or competing priorities and resolving them.
Once a client’s needs have been identified, advisors still need to help their clients save for them. Even though pre-retirees tend to prioritize financial security,3 many still struggle to save enough.
One of the reasons for this is “intertemporal choice” – the problem of choosing between your present and future self – explained behavioral economist Dan Goldstein.
“So you’re deciding to consume things now, spend money now, or consume things in the future, spend money at the time of retirement. As we know, we tend to live in the present, and it’s very easy to find uses for money now.”
Dan said that his research had shown that people tended to have an over-optimistic view of how long a lump sum would last. Advisors can help by converting that lump sum into a specific, representative monthly income.
“When you say you’re on track to retire with $100,000, people kind of go easy on the saving. When you say you’re on track to retire with $500 a month, people save a lot more money.”
Dan also suggested making use of a natural built-in bias that most human beings have, called “reference dependence.”
“Here’s where advisors can really set expectations. If an advisor comes in and says it is normal to retire on 70% of your pre-retirement income, then people will make that 70% a goal. We find that they treat it as kind of like a magic number. They’ll exert a lot of effort not to go below these reference points.”
One of the biggest challenges for clients is choosing the products they need to reach their saving goals. The market is flooded with investment products, and too much choice can lead to confusion and indecision.
“The degree of availability of financial products out there can hinder both advisor and their client,” said Jay. Giving clients too many products to choose from can actually make it harder for them to make a choice, because it increases the chance of making the wrong one.
“The choice of products isn’t one that they’d necessarily need to be making,” said Dan Goldstein.
He explained that his research shows that it is very difficult for clients how financial products might perform in the future, describing it as “doing things backwards”.
“Clients don’t really care about stocks, bonds, real estate, mutual funds, options, ETFs, etc. Those are a means to an end … I think what people should do is really focus more on where they want to end up and realize that.”
Dan said he believes that when clients make poor decisions it may be “simply a consequence of communicating information to people in a way that they’re not familiar with.”
He said his research showed people tend to make rational economic decisions if information is communicated to them in a way they understand. It is usually only when they misunderstand that irrational decisions are made.
“The advisor’s role is to pose the questions in a way so that people can see the path to the correct answer,” said Dan.
“The number one reason why investors leave their advisor is lack of communications,” said Mark Zinder, advisor champion.
"Be able to communicate with the clients in a way that they want to be spoken to. But the answer is in the asking, and the answer is in the listening. Are you listening to what they say?”