If you ask most people what the biggest change the financial services industry is facing, they will likely say regulation. The DOL’s fiduciary standard and conflicts of interest rule has certainly captivated everyone’s attention for more than a year. Regardless of implementation date, firms across America are already changing how they conduct business. But, regulation is only a small percentage of the changes that likely will force us to change our practices—and for the better.
Several trends will impact the expectations of our clients in the future as they plan for retirement. Each creates a certain amount of risk, but three in particular will force us to have a different kind of conversation with our clients than we’ve had in the past.
Growth of Defined Contribution Plans—For the three decades beginning in 1979, the number of participants in defined contribution plans grew from under 20 million to nearly 70 million. At the same time, defined benefit plan participants decreased to under 20 million during those same 30 years.1 We are beginning to feel the effects of that switch to defined contribution as the first wave of retirees roll out of their 401(k) plans. The timing of the DOL rule is perfect, because so many American workers need advice on generating income, not accumulating assets. For planners who want to grow their business, they will need to reconcile the need to plan for income versus asset management. Clients will soon begin asking—if they aren’t regularly doing so now—about how to generate income for life. The importance of asset management is decreasing, as evidenced by fee compression within the industry. Our clients simply do not see the value in asset allocation services the way they did during the accumulation phase of their lives.
Fee Disclosure—Many of us are accustomed to disclosing fees, especially those of us who have worked with ERISA plans in the past. However, the change in client mentality will encourage us to not only disclose more but also to redefine how we disclose. I sense that the new purpose of disclosure is more about understanding the client value and less about fees. Our clients are becoming more educated through unlimited educational resources, robo-advisors and fee-conscious service providers. Unfortunately, these trends are affecting the value of the traditional planner who focuses only on retirement income planning. In the past, our fee structure included asset management. We now need to solidify how much is going for asset allocation services and how much is going to our other value-added services. Disclosure will force the successful planner to add more value. You might say that is simple fee compression, and it might be, but if you evolve into a holistic financial service that offers more than just asset management, you have more justification for your current fee structure. Those additional services can be added with scale and efficiency to replace or grow your revenue per client—now and in the future.
Re-engineered Marketing—Gaining clients in the future will be more difficult—even more difficult than it feels today. Our prospects have access to our backgrounds, our web sites and our social media profiles within seconds. We are faced with so many chances to create one negative impression against hundreds of positive public interactions. In the future our prospects will come to our offices with more information about our firms than they ever had before. It’s as if we, the planners, are at a disadvantage because we don’t know as much about them. However, we can use technology to manage the marketing risks and turn it into a positive. We must have a social media strategy with checks and balances—a process for posts and reviews. This will take effort to set up but can pay dividends in client acquisition. The costs associated with prospecting can become scalable and efficient if social media is used properly. Additionally, we have to always be on the lookout for new ways to secure new clients using referrals and positive experiences.
While regulation will affect us in 2017, the financial planning market place is likely to have a more profound impact on how we grow going forward. Take the opportunity to evaluate how you will grow regardless of regulation.
Think about how changes in the market will affect your clients’ views of retirement planning. Disclose your value differently than in the past and focus on marketing those strengths in the future.
About the Author
Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of annuities at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”
1 EBRI, Department of Labor
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