Why Clients Need Our Help

To build a retirement fund, you only need to do three simple things: Make money, save money, and invest money. It all sounds so simple, and yet, the average net worth of a baby boomer (the post‐World War II generation, ages 58+) is less than $210,000, according to Business Insider. Baby boomers seemingly had many advantages. They grew up in the wealthiest and most advanced country in the world—a center for scientific and engineering innovation that houses the world’s reserve currency and offers up a plentiful supply of resources to power up an ever‐growing and expanding economy. So did boomers not think about the future, or were they lacking the proper advice and support in planning for retirement?

Most financial professionals know intent isn’t enough; it takes a disciplined investment approach. But for many individuals, the difference between (and importance of) investing versus just saving may not be entirely clear. Consequently, offering financial planning services requires acting both as an advisor and as a salesperson. Since investment services and products are intangible and prospective in outcome, it inevitably involves some selling.

Financial service advisors often don’t like being perceived as salespeople. At the heart of their discomfort is the face‐to‐face sales conversation, which many financial professionals feel is laced with subjective overtones, bordering on the unprofessional. They want to be trusted, and yet they feel that selling detracts from the trust they worked so hard to create and earn. The typical client is only marginally knowledgeable about the investment process. This can create a situation of opposing perspectives—the client is fearful of being disadvantaged, or worse, being bamboozled, while the salesperson is afraid of being rejected. Both can hinder the process of providing the needed expert financial advice.

Life is a Challenge
From the client perspective, their lives are complex, demanding, balancing family, career, job and obligations including home mortgage, vacations, cars for their teenage kids, college expenses leaving retirement funding in the distant future. It may seem that no matter what plans are made, life is asymmetrical, non‐linear, making it difficult to implement a sustainable plan.

We humans think of ourselves as being above animals, and yet we share many animal traits, including instinctive behaviors developed for survival. We are hard-wired to avoid loss when comfortable but scramble madly when catastrophe strikes. Plus, many of us encompass internally contradictory values and drives, with layers of beliefs that underlie our behavior. So we may say one thing but do the opposite.

Temptations Abound
Evolving technologies designed to cater to every need and want of consumers have converged over the last ten years. Amazon, Uber, Drizly (alcohol delivery), Grubhub (meal delivery), Airbnb, Apple just to name a few have come to the fore catering to the needs and whims of consumers. Amazon can deliver most orders overnight. Drizly can deliver alcohol the same day as ordered. Uber can chauffeur you wherever you want to go in almost every continent in the world. All it takes is loading an app on your smartphone.

To complicate matters, we have witnessed the wholesale legalization of vices, including psychoactive drugs, aka cannabis or marijuana, gambling (lottery and sports betting), dating, sex, and porn sites, while an increasing number of woke district attorneys have made it clear that they won’t charge certain crimes. The problem with vices is that they are inherently addictive, and addictions strike when we are trying to mask or soothe or escape from whatever makes us uncomfortable.

If reality is too much, we can now escape to the metaverse, a virtual world of fantasy and online gaming, or we can actually escape by scheduling a trip with the many travel sites that will whisk you away to a world of travel and adventure possible following in the footsteps of some historic or mythic figures.

We can experience pleasure without delay, scratch any itch, compulsion, or impulse. These services are only a simple keystroke away from the comfort of your own home. Never in the history of mankind have we been exposed to such a comprehensive set of services that are able to cater to our every whim!

Instant gratification is the opposite of what most of us have been taught. We have been told to try to practice delayed gratification. But we humans are hardwired to want things now. Waiting is hard, and there is an innate desire to have what we want when we want it. In a world of instant gratification, it’s a real challenge to sacrifice spending today for a distant, nebulous future.

The Tyranny of the Treasure Hoard
Let’s say a client can amass substantial liquid wealth before retirement. Given the incredible sustained growth of the stock market over the last 14 years, it’s not uncommon for people in their 40s to have accumulated balances of half a million or more in their 401k accounts. When a Viking leader won treasure from one of his raids, he would secretly bury his treasure hoard. We know this because treasure hunters have been uncovering such hoards buried across the English countryside with some frequency. But alas most Viking warriors didn’t get to live to a ripe old age taking their secrets with them. The realization that one has accumulated wealth beyond their dreams can be tempting. It can trigger impulse purchases such as that dreamed of RV. Or it can lead to aggressive investing by swinging for the fences in a go for broke approach by concentrating investments in higher growth stocks in the quest of early retirement.

With the demise of defined benefit plans, most clients are forced to rely on their defined contribution plan. The problem is that it requires considerable discipline, restraint, and self-control to accumulate a critical mass of dollars. The temptation to spend money to fund current so-called needs at the expense of a hazy, nebulous future can be irresistible.

Corporations are Aware of their Own Executives’ Vulnerabilities
When I was an executive at a bank, it was fairly common even for ranking bank executives to find themselves unable to meet their loan obligations, which were afforded them under very generous terms by their bank employer. The tendency to live beyond one’s means can be overwhelming.

Even large corporations offer free financial advisory support services to their executives. These executives typically represent the best and brightest with great business acumen and understanding of markets, and yet with all their success they still need the aid of a financial advisor. We live in the age of specialization. It’s highly unlikely that the typical civilian on their own can achieve their financial goals. Even investment experts have problems keeping up with information overflow. The Internet creates streams of data 24 hours a day. The problem is how do you distinguish between the overwhelming noise and misinformation from the essential facts. The typical amateur’s investment style is more akin to Vegas than meticulous long-term investing. It usually devolves into chasing the latest craze in high growth investments ranging from speculative small-cap high growth stocks or chasing the newest class of assets—cryptocurrency.

Prospective clients suffer from over confidence. In the absence of a compelling sales pitch, most prospective clients think that they can handle this alone. They overestimate their ability to judge stock prices. An example of that is “anchoring” the value of a beaten down company by the much higher price it used to trade at when it still has a lot further to fall.

At the root of the problem is not having a financial plan that is integrated with the client’s lifestyle. Just like the perpetual dieter who never succeeds in losing weight on a permanent basis, an individual without a financial plan integrated with their lifestyle is doomed in their attempts to achieve a sustainable retirement plan. A dieter may succeed in losing weight in the short term only to see all come back in the long term.

Selecting a Financial Planner
A broad range of wealth management advisory services have evolved in the last decade, but all appropriate wealth management firms share a common trait of separating money management services from custodial services. Traditional wirehouses which have historically dominated such as Morgan Stanley are structured to offer trading desks, market making, inventorying stocks and bonds, and corporate finance services. Typically, they do not have a fiduciary obligation to their clients. These firms have now been segregated into two broad categories: Traditional trading investment services and self-directed low-cost trading services with concentration in custodial services—such as Schwab and Fidelity.

Another broad categorization of firms is based on fee structure. Most small boutique investment management firms offering tailored portfolios for their clients are typically fee only. They are usually staffed with highly credentialed managers that hold advanced degrees, MBAs and JDs, and professional designations such as CFA, CLU, or CFP. These firms avoid trading desks, market making, inventorying stocks and bonds, and corporate finance to avoid conflicts of interest.

In the last decade, new robo investment firms have formed such as Betterment. These firms have invested in technology to automate investment allocations and are designed for low fees and offer end to end online user-friendly transparent reporting.

Either way the investor benefits by having the ability to exercise a broad range of choices, but one factor that should be prioritized. Firms that offer access to highly credentialed support staff is a plus. Professional designations such as CFA or CFP or CLU signify trained knowledgeable staff that focus on offering objective advice rather than salesmanship.

How Financial Advisors Help
The need for a highly credentialed advisor and life agent is paramount. For a client to have any chance of succeeding in their long-term investment goals, there has to be significant buy-in to have any staying power with the client. The advisor has to work with the client in forging fundamental underpinnings in the construct of a financial plan. The plan needs to be structured to be incorporated as part of a client’s lifestyle of saving and spending. This requires extensive multi-disciplinary knowledge on the part of the advisor and examination of the client’s situation. The basis of the plan should incorporate a comprehensive understanding of the client’s risk profile, work and income timeframe, personal customized longevity expectations, long-term personal goals and expectations, and family obligations and commitments.

A qualified advisor can assist a client in staying the course and living by their financial plan. Even when the market corrects drastically, it’s up to the advisor to keep his client from stampeding. As we discussed, life can be challenging but in life every individual will be confronted by the same shared 35 critical life decisions, such as home purchase, death in the family, estate planning, divorce and so on. Many of these decisions can cast a long shadow over a client’s life since they tend to be consequential. It’s at these times clients will need a second opinion. Having access to a highly credentialed advisor is essential in facilitating better decision making and the realization of a client’s financial plan, since financial advisors have the tools to overcome these obstacles and help clients create a plan for their future.

Peter Klein, CFA, is director of advanced markets and underwriting at Secor Advisors Group, LLC, with more than 25 years of experience in life products, wealth management, estate and retirement planning.

Klein started his career with Travelers Insurance Company in private placements and portfolio management. During his tenure at Travelers, he attended life insurance school, receiving extensive training in life insurance products. He has advised corporations on keyman policies, corporate COLI plans, and premium finance–including comprehensive policy reviews.

For the last several years, Klein has provided consulting services to life insurance general agencies and independent marketing organizations. He holds two graduate degrees, an MS in science and an MBA from the University of Connecticut.

Klein can be reached by telephone at 317-414-1205. Email: peterk711@gmail.com.