By Paul Vorstadt
The concept of retirement is a relatively new phenomenon. It wasn’t that long ago that people didn’t retire at all. Thirty years ago people retired at 65 with a life expectancy of 70-72 years of age. Retirement was short and as such people were able to retire on their pensions.
As time passed people were living longer and their expectations of retirement lifestyle increased along with it. As the length of retirement increased the focus on who was going to pay for it changed. It became apparent that for a person to retire successfully the onus to save for it was now on them – this lead of course to the flourishing of the investment management business.
Few industries have become as commoditized as financial services over the past three decades. Products and services become more removed from the customer, and the personal touch that was provided is replaced by “cookie cutter” solutions. Relationships disappear as personal dealings with customers become streamlined.
“The world of commoditization has landed on the finance industry like a ton of bricks,” says James Scurlock, senior manager in Cap Gemini Ernst & Young’s (CGEY) financial services industry (FSI) practice.
While some will argue that commoditization of financial services worked during the accumulation phase of the baby boomers, others would point out that it was only successful due to one of the greatest secular bull markets ever from 1966 to 2000. Commoditziation will not work during the decumulation phase. Deculmulation is where you turn your hard earned capital into retirement income. Preparing for the decumulation phase is an extremely individualized process that will need to be tailored to each client’s unique circumstances.
The decumulation side of the advisory business is where investment management was 40 years ago— pre-retirees and retirees will be the fastest growing segment across the next five years as well as the next 20. More importantly, the process of aging and the “event” of retiring will fundamentally change the needs of many high-net-worth individuals. This transformation of client needs will occur on a never-before-seen scale and trigger a corresponding set of risks and opportunities.
Commoditized financial products and services of the past will no longer be able to meet the needs of our aging population as there are fewer clients fitting into an established mold. While technology will continue to augment financial planners, it will never replace them. Clients need adviser’s that understand and can build scenarios around the fact that careers, corporations, industries, markets, marriages, family life, and healt often take unexpected turns. Clients need to understand the “what ifs” and how alternative scenarios can play out. It means that relationships need to move back in time in order to move forward. The Internet, the telephone, the “one size fits all” financial plan, will never replace the caring, conscientious wealth advisor who not only can provide solutions but more importantly can point out the potential pitfalls.
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