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Disruptors Paving the Way for New Competitors
In 1965, a Harvard-trained lawyer working for the U.S. Department of Labor published a book warning Americans that their cars could kill them. Unsafe at Any Speed: The Designed-in Dangers of the American Automobile by Ralph Nader (1965) rocked the Detroit auto industry, and its damning revelations prompted the federal government to act with uncharacteristic energy to implement the National Traffic and Motor Vehicle Safety Act the next year. Nader’s message was that car manufacturers knew about vehicle defects and in fact designed them that way. His moral observation: You can’t trust the maker of the car you drive.
Now let’s take another industry that’s likely to face trust issues. Tens of millions of Americans believe they are going to be fine in retirement. But those of us in the financial advice industry know better. Most of these retirees will run out of money, have significant health issues, and become unable to manage the care they need.
But have we warned consumers about this? If we cannot ensure that they thrive in longevity, aren’t we responsible for telling them? And if there is a problem for consumers, then financial advisors, their firms, and investment solutions companies will be greatly affected.
This article outlines:
- The impediments to effective consumer/client engagement for advisors.
- The structural barriers facing investment and product providers and advisory firms.
- The path forward for creating better outcomes and comparative models for success.
The need to aid an historically large generation of retiring consumers and their families is the most significant financial challenge in post-World War II America—and the current outlook isn’t good.
Retirement Challenge #1: A Lot of Unprepared Consumers
Consider that when you search Google for "retirement savings crisis" you will get 69 million results. The vast majority of our clients are baby boomers, the generation first born in 1946. That group still is 70-million strong, and together with their children and aging parents represent more than one-third of the U.S. population. They own half the nation’s wealth and represent 70 percent of its consumer spending. They currently generate 80 percent of financial advice industry revenues and will hold that spot through 2030, according to Tiburon Strategic Advisors.1
We know consumers are concerned about market volatility—and that concern becomes acute when they near retirement. According to the Alliance for Lifetime Income (2023), 43 percent of consumers believe the 2022 market setback represents a longer-term change that negatively alters their retirement outlook. They are facing a different economic and personal healthcare picture. More than half of consumers said one of the three reasons they retired was circumstances of health, job loss, mandatory age requirements, or the impacts of COVID-19.
Awareness of the risks of longevity is growing. During the boomers’ lifetimes, life expectancy at birth has increased 17 percent to 78.8 years, and life span at 65 has increased 44 percent. That longevity will demand more resources from them after they retire. Yet at the same time, the workforce supporting Social Security recipients has declined. The number of workers per beneficiary was more than 50 in 1946.2 That ratio has now fallen to 2.8 workers. Meanwhile, by 2040, the number of Americans age 65 and older will have doubled since 2000, and the population age 85 and older will have doubled since 2020.
We also know that many people don’t just ‘feel’ vulnerable. The National Council on Aging (Basel et al. 2023) said 80 percent of households with an older adult are financially struggling today or they’re at risk of economic insecurity as they age. Most Americans also said they want to live independently, in their own homes, as they age. But 60 percent can’t afford more than two years of in-home care, and 45 percent of people age 60 and older don’t have enough income to cover basic living costs.