Rebuilding Portfolios By Rebuilding Trust
Recently, the researchers at Financial Finesse provided some expectedly dismal statistics: Boomers aren’t saving, Millennials are managing cautiously, and Gen Xers are still having a tough time. But there was one interesting nugget: The report pits some of the blame on the financial services industry for placing an unusually heavy emphasis on the analytics of planning and investing, rather than on a client’s “life stage” – the thing that will most affect their attitude about money, saving and investing, not to mention the products and services they are able (or not able) to buy.
Many investors used to blindly hand over their nest eggs to a brokerage or individual whose duty was to assure asset protection, diversity and growth. After all, they were the experts. But National Retirement Risk Index data show most Boomers were considered “at risk” back in 2007, well before the latest financial crash. And it’s fair to say, the financial services industry has done little to earn the trust of typical “question authority” Boomers who were hit by the 1987 market crash, 2002 dot com implosion and 2008 recession. With so much lost and the virtual disappearance of guaranteed pensions, financial security in the later years is the new American dream - in a landscape of insufficiently funded plans, changes in Social Security regulation, dependent children and parents, and economic uncertainty.
Financial education is becoming increasingly important, as saving becomes more difficult.
This generation, which is redefining retirement, is in dire need of advice and products that can provide long-term stability and security. Advisers will have to make the mindset switch as well. How?
Know where they are, personally and financially: Advisers and services operators will need to leverage products to provide some instructive, sound guidelines to help their clients fully grasp the reality of their financial situation, protect their savings, and address their fears of future expenses. For example, target singles and women, both of whom typically have lower incomes, with products such as disability and long-term care insurance. Educate younger Boomers and Millennials, who are graduating deeply in debt and have memories of watching their parents and grandparents lose a chunk of their own savings on how to take charge of their money. Finally, focus on early Boomers (generally in the strongest financial shape) who are approaching the critical distribution phase of their retirement planning.
Make it relevant: Marketing messages need to approach Boomers in a way that brings to mind the challenges they faced and overcame throughout their lives, portraying retirement as being just another mountain to climb and conquer. Charles Schwab’s “Old Dogs, New Tricks” spots for their IRA offerings and Merrill Lynch’s “Act Two” ads are doing this successfully: Schwab is convincing customers to take their idle 401(k)s and roll them over into a Schwab IRA with simple visuals: a man in a suit, a dog and a doghouse, and some uncomplicated print. Merrill Lynch’s serious, yet hopeful tone emphasizes the company’s ability to assist Boomers with their retirement needs, using the word “help” twice.
Take a cue from the online brokerages. Aside from compliance and privacy concerns, agents need to take advantage of new technologies that offer opportunities to connect with this computer-savvy audience through mobile content and social media – including apps that provide instant information, smooth transactions and access.
Keep it simple and transparent: Last year’s Allianz Life American Legacies Pulse Study showed that, although Boomers and their parents were never really on the same financial page, both agreed that when it came to an advisor, “honest and trustworthy” was named the top characteristic, followed by “explains things in an easy-to-understand way.”
As the economy slowly rebounds, the demographics are favorable for growth in the financial services industry. But current conditions may require a change in mindset for advisers trying to rebuild damaged portfolios — namely, rebuilding trust.