Retirement Is a Burning Platform – and Your Hurdle Rate Is on Fire

“Retirement” is bad news for most advisory practices.

One top advisor frames the challenge this way: “Our retired clients are our loss leaders. They have the most assets but their needs for service exceed the revenues they generate. It is a drain on the practice.”

Of course, these “loss leaders” were actually “cash cows” not too long ago. Looking back just a few years to the post-Great Recession market low in March 2009, the median age of the dominant baby boomer client cohort – was just 54 - pretty much peak earnings time for most professionals and business owners. Pile on a fivefold increase in stock prices and you have a rocket ship of a business.

Until now.

Now the median age is 68 – and the oldest boomers are a pretty senior 77. Next year, reminds the Alliance for Lifetime Income’s 2023 Protected Income and Planning Study, more Americans will turn 65 than ever before - Peak65. This is just the crest of the wave.

Where There is Smoke, There is a Practice on Fire

I frequently engage industry leaders on the subject of “retirement” and I hear most often that retirement is important but it’s not a “burning platform”. Natch. Of course not. What advisor wants to warn management that there is trouble ahead? The response will be to work harder.

Worse. What if you had brilliant timing and sold your practice during the meteoric rise and have an earn out? Shhh….this isn’t the NFL, where your current performance matters more than your past performance. Keep your eyes on the prize – your own retirement as an advisor.

Much worse. What if you bought an advisory firm or a practice and used the same rosy projections we tend to use with clients and didn’t factor in the increased service costs associated with clients as they age – or the importance of engaging the next generation so those hard won, fast rising assets won’t run off to another, more attentive advisor?

There are some tough conversations ahead with the financiers of advisory businesses who are increasingly vulnerable to the implications of clients’ longevity. Unprecedented longevity is uneven – even unpredictable. Clients can live a very long time these days and be a part of the practice for decades after retirement. And the long-term retired client is a very different client than the low maintenance, 50-something that built the modern advice industry.

What Now – Four Important Actions to Preserve Your Wins

1. Normalize “longevity”. It’s not going away. The clients aren’t going away. Accept this difficult reality by reviewing the practice and laying out the data. Be sure to capture the full client family profile. Spouses, adult children, aging parents – all factor into the future service needs and opportunities for the retention and the growth of the practice. Do we know them, do we talk to them?
2. Prepare to retain. Organic growth is the measure of business health and it has all but disappeared as the demographic impacts roll over the industry. The key to retention of aging clients is the ability to take on their challenges – life events linked to longevity we call The Moments That Matter (FA, October). Most families will experience most of the seven moments and our response is the test of our value to them. We don’t get fired by clients who age, we get fired by their adult children watching how we treat the parents. Don’t lose G2.
3. Embrace the scale – with help. The average advisory book was built for clients saving and investing – not retiring. Retirement is more complicated and each client needs much more time than a low maintenance accumulator. As in personal health care, we will need clients to do more themselves – and that’s ok. We will also need to suggest and promote ideas to more clients and let them come to us when they’re ready. The key will be to consider them like the patients of busy doctors who see a remedy on the evening news – “Ask your doctor if you’re right for Ozempic” will morph to “Ask your advisor about protected income or long-term care insurance”. Count on it, accept it, benefit from it. Research we’ve done indicates retiring clients and their families are most concerned about three solutions - health/healthcare, guaranteed income and liquidity.  The common thread of these three is that MOST advisors don’t talk much about any of them.
4. Seal your reputation. This one is for solutions firms. Make sure your ideas and your people are visible and credible. Help your advisor clients by having good ideas and making a name for your firm in the mind of clients. This is the sort of “Intel inside” strategy that adds value to the advisory process. Clients are increasingly seeing the same information as advisors in the same locations. Be there and be notable – and memorable. If only to break the tie between you and competitors. This profile will matter.

The New S Curve is Longevity

“Retirement” may not be a “burning platform”, but the smell of smoke is everywhere I travel. Longevity is the underlying force that looms ahead and will change our clients, our industry and our lives. Your response dictates the outcome – not just for you and your company – but also for at least two generations of clients who need your help. Our help. And we will need to work together to achieve better outcomes for those clients and their families.