Look Be­yond HNW Clients

You might be miss­ing out on a big op­por­tu­nity to build your book of busi­ness.

Financial Planning - - Contents - BY AMANDA SCHIAVO

You might be miss­ing out on a big op­por­tu­nity to build your book of busi­ness.

Fi­nan­cial ad­vi­sors tend to seek out cov­eted high-net-worth in­vestors, but this isn’t the only op­por­tu­nity for growth.

A large seg­ment of non-wealthy work­ers could ben­e­fit from an ex­pert’s perspective and these po­ten­tial clients are un­der­ser­viced.

Only one-in-three mid­dle-in­come work­ers are on track to achieve a com­fort­able re­tire­ment by age 67, re­search by Aon found. The av­er­age U.S. worker will need to wait un­til 70 to re­tire, based on sav­ings habits. But the av­er­age Amer­i­can says that they will re­tire at 66, ac­cord­ing to a re­cent Gallup sur­vey.

These po­ten­tial clients may just need to re­al­ize that help is avail­able or know how to find it, says Alex Koury of Val­ues Quest in Phoenix. But what are the best strate­gies to tar­get this seg­ment?

“The big­gest thing we can do as ad­vi­sors is of­fer our ser­vices and lay out our cost of ser­vices to peo­ple that re­ally only need, say, the fi­nan­cial plan,” he says.

This can break down bar­ri­ers and change mis­con­cep­tions be­cause “if some­one knew that they could get their whole plan­ning done for a few hun­dred dol­lars to maybe $1,000 — depend­ing on the com­plex­ity of their fi­nan­cial plan — that’s a dif­fer­ent con­ver­sa­tion than au­to­mat­i­cally as­sum­ing that ad­vi­sors won’t talk to you un­less you have $250,000 of in­vestible as­sets.”

In­deed, only 50% of peo­ple aged 60 and 69 con­sider them­selves to be ad­vi­sor as­sisted or ad­vi­sor di­rected, ac­cord­ing to a Cerulli sur­vey ask­ing in­vestors how they’d clas­sify their ad­vice ori­en­ta­tion.

Ad­vi­sors who can “cred­i­bly con­nect with in­vestors in this seg­ment can make sig­nif­i­cant pos­i­tive im­pacts in the lives of in­vestors as well as their own prac­tices,” says Scott Smith, di­rec­tor of ad­vice re­la­tion­ships at Cerulli.

But there is one trend work­ing in ad­vi­sors’ fa­vor: “In­vestors’ will­ing­ness and con­fi­dence to op­er­ate on a self-di­rected ba­sis de­clines with age,” Smith says. “Once in­vestors have ac­cu­mu­lated as­sets and are ap­proach­ing re­tire­ment, they need more hands-on help. Cre­at­ing a sus­tain­able re­tire­ment in­come stream is much more com­plex than main­tain­ing an ac­cu­mu­la­tion port­fo­lio.”

The real op­por­tu­nity, though, comes from seek­ing out that other 50% of re­tire­ment aged-peo­ple not work­ing with a pro­fes­sional but in need of guid­ance.

“One op­por­tu­nity is through fi­nan­cial ed­u­ca­tion work­shops,” Koury says. “Whether you can set up a work­shop through our lo­cal li­brary or com­mu­nity col­lege, those are great ways to get in front of peo­ple [who] want to learn about fi­nan­cial plan­ning and fi­nan­cial ed­u­ca­tion. You can be a teacher to them, to show them how to put a fi­nan­cial plan to­gether. Those are great ways that are very in­ex­pen­sive to ex­e­cute.”

Speak­ing di­rectly to dif­fer­ent em­ploy­ers within your com­mu­nity and set­ting up fi­nan­cial well­ness pro­grams for their em­ploy­ees is an­other way Koury says ad­vi­sors can reach these clients.

“Most peo­ple [who] al­ready have a lot of money and lit­tle debt don’t need a whole lot of help. But this is al­ways the de­fault, in my opin­ion, when it comes to mar­ket­ing and prospect­ing — look­ing for those [with] the most money,” he says. Peo­ple who need the most help are the ones who “aren’t be­ing paid at­ten­tion to.”

One of the top pri­or­i­ties for ad­vi­sors is to make sure clients’ sav­ings will not dry up dur­ing re­tire­ment. This is also a top pri­or­ity for clients since spend­ing re­tire­ment money of­ten cre­ates anx­i­ety, says ad­vi­sor Melissa So­tudeh of Halpern Fi­nan­cial in the Washington, D.C., area.

As a re­sult, she takes her clients through an aware­ness ex­er­cise that

stress tests their port­fo­lios in or­der to see how they’ll hold up amid a bear mar­ket.

“The typ­i­cal ad­vice of a 4% with­drawal rate does not take se­quence risk into ac­count, and it doesn’t ac­count for re­quired min­i­mum dis­tri­bu­tions, So­cial Se­cu­rity ben­e­fits or the fact that a per­son’s re­tire­ment in­come needs may change over time,” she says. “We typ­i­cally cre­ate a plan called a re­tire­ment in­come se­cu­rity plan for our clients, which de­tails a with­drawal se­quence and proper port­fo­lio al­lo­ca­tion to sup­port an in­di­vid­ual’s re­tire­ment in­come needs.”

It’s im­por­tant to have an idea of how money will flow — and be taxed—from all in­come sources, So­tudeh adds. When a client’s sav­ings are all pre­taxed re­tire­ment ac­counts, ad­vi­sors have to fac­tor for that, she says.

“We do take into ac­count if it is all pre­taxed money be­cause the bal­ance of the pre­tax ac­count, the value needs to be dis­counted for the tax im­pact. So it’s lower.”

An ad­vi­sor may be able to come up with a smart plan, but if they are un­able to reach the peo­ple that need it most, it could all be for naught.

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