What makes baby boomers tick?

By Vanessa De La Rosa


You’ve heard it a million times: 10,000 baby boomers will turn 65 each day for the next 15 years. They are living longer and aiming to retire earlier. They also control a large portion of the nation’s wealth. This means there is an enormous and steady influx of prospects nearing and entering retirement on a daily basis — and they’re looking for a financial advisor who has specific knowledge of decumulation and can help them establish guaranteed income they won’t outlive. Yet many advisors are still focusing on clients in the accumulation phase, figuring their AUM can only grow larger by doing so.

Not these three advisors. They are doing remarkably well — AUM between $100 million and $300 million — by specializing in baby boomer retirement and understanding exactly how boomers tick.

A wide-open window of opportunity

It’s hard to deny the opportunity boomers present to advisors looking to grow their business, says Gregory B. Gagne, ChFC, owner of Affinity Investment Group, LLC in Exeter, NH. “From a sheer marketing perspective, there is a huge abundance, a huge need, and not enough advisors to service the need that exists.”

Gagne says he deliberately sought out boomer clientele. “I laser-focused my entire practice around working with people who had their landing gear down,” he says, “people who were coming into retirement and trying to move from being accumulators to decumulators for the rest of their lives.”

Working with boomers, Gagne says, is more enjoyable than other generations because “they’ve accomplished most of their lifetime- and career-related goals” and are now looking to reinvent themselves and focus on leisure and volunteer activities. “Seeing and participating in this process is fun,” he adds.

Brian D. Heckert, CLU, ChFC, AIF®, owner of Financial Solutions Midwest, says he somewhat stumbled into the market when he found that the majority of prospects in his local area of Nashville, Ill. were boomers. “It’s not so much I gravitated to the market as much as that market gravitated to me,” he says. But he believes that the market is here to stay. His clients, who had been working with multiple advisors during the accumulation phase, are now consulting him as their sole financial advisor for the distribution phase of life because “people want to simplify, so they simplify their advisor relationships, as well.”

This development isn’t unique to Heckert’s practice. According to a 2006 study by McKinsey & Co., 75 percent of boomer clients switch advisors within the 15 years preceding retirement.

Gagne has noticed the same trend. While many of his clients also work with an accountant and an elder care attorney, very few are working with more than one financial advisor. “It becomes an issue of too many cooks in the kitchen,” he adds. This movement toward simplification provides advisors with a key business opportunity, he says: the chance to solely manage each client’s distribution process.
Rectifying previous risk-related losses

For Briggs Matsko, CFP, CRPC, co-founder of Retirement Security Centers in Sacramento, Calif., understanding boomers is a no-brainer: He is one. However, he says there are still challenges working with their unique personalities. While boomers tend to use the Internet to educate themselves about financial matters and are price-conscious when it comes to investments, he says “many still think about retirement abstractly when it comes to finances and haven’t considered how to specifically categorize expenses in retirement or link them to their incomes sources and assets.”

According to Gagne, boomers have a reputation for being more risk-prone than their more conservative parents, the silent generation. He says that, while the silent generation “kept all their money under the mattress,” boomers are more aggressive with their investments. “They’ve been told all their lives that equity outperforms debt in the long run,” Matsko adds, “which is why they tend to have riskier portfolios than they need for retirement.”

Before the market crash of 2008, many boomers aimed to retire by age 55 or 60 and lead a comfortable lifestyle similar to — or better than — the one they led before retirement, says Heckert. But when the market went haywire, their goals for retiring early went up in smoke. “They didn’t save enough, they spent too much, and now a lot of them are working 5 to 7 years longer than they ever anticipated,” he adds.

A shift in mentality

Gagne says the market crash was a game-changer for the psyche of many boomers. Many of his boomer clients and prospects have had to shift from focusing on how much they make to how much they keep. “A lot of folks spend their time looking at how they can get the maximum rate of return,” he explains, “whereas what they should really be focused on is a strategy that gives them guaranteed income month over month without having to worry about the risk that’s associated with keeping a large portion of their portfolio in the markets.”

Heckert, Gagne and Matsko have noticed that their new boomer clients have a tendency to underestimate their financial standing. “No matter how much someone has accumulated,” Heckert says, “they’re almost always apologetic that they don’t have more.” Gagne attributes this lack of confidence to the economic events of 2008, but also to what he calls “accumulated adult baggage.” Many of these boomer clients have changed jobs several times through their lives, leaving them with a variety of 401(k)s. They may also have a defined benefit plan, some Roth money and some IRA funds. In too many of these cases “nobody — including the client — has ever taken the time to orchestrate and determine what kind of capital they have,” says Gagne.

There is also a transfer of wealth issue, says Matsko, as most of his boomer clients “don’t have defined-benefit plans like their parents did” and have to manage a bucket of money they’re not sure they’ll outlive.
There really aren’t many safe options left in the current environment, according to Heckert. “What we’re seeing with a lot of our boomer clients is that we have to find an alternative to the old 60-40 rule,” he says, referring to people’s previous tendency to break their portfolios down to 60 percent equities and 40 percent bonds. Though to some a contrarian view, Heckert sees bonds as more volatile than the equity markets over the next four or five years due to the potential for rising interest rates. In working with clients, he’s had to get creative by “finding an income alternative for the space where bonds were once used and using the income features offered through insurance company products until interest rates start to increase,” he says.

Matsko doesn’t have a rule of thumb when it comes to trying to move his clients over to safe money investments, since each retirement plan is customized to a certain degree. However, he says that many times, when it comes to qualified assets, “we create pension income streams by using annuities, either regular SPIAs or living benefit products.” The guarantees inherited through these products create income streams for a client’s lifetime — and for beneficiaries, should they choose — that cannot be outlived.

“Since qualified assets do not pass through the estate easily,” he notes, “it makes sense to distribute them as the code intended for a pension or pension supplement, especially in light of minimum distribution requirements.” Sometimes, his clients will accumulate much more than they spend and find themselves projected to exceed the unified credit limits, in which case he “may use life insurance, specifically second to die (if it is a couple) to provide liquidity for the heirs.” He uses life insurance to create “pension max” options if the beneficial options in a defined benefit plan are unfavorable, and he may also suggest funding life insurance to create a greater estate for heirs. And if clients don’t want the risk of self-insuring or want to leverage their assets, he will often use long-term care options.

An aversion to the direct sale

All three advisors revealed that marketing and selling to boomers requires a different approach compared to other generations. Heckert says that boomers respond better to presentations about reaching retirement earlier than presentations about setting up their estates; the silent generation is more interested in the latter, he says.

Matsko has noticed that his boomer clients prefer graphics and images over spreadsheets and narratives. “They are averse to being sold directly, he says, because “they want a reason to buy investment products that goes beyond features and benefits.”

According to Gagne, boomers are looking for candid conversation and are less likely to second-guess an advisor’s expertise. “I think younger folks can be skeptical,” he says. “You can’t just make a statement; you have to prove that statement, whereas the boomers are more open-minded about seeking help.”

They’re seeking help, alright, and they’re coming in droves. While many advisors are out there trying to charm younger investors into their offices, the baby boomers are standing right outside their doors.