In the world of financial advice, focusing on retirement planning has long been the most popular strategy. And the reasoning is quite straightforward. Just as bank robber Willie Sutton once explained why he robbed banks - "Because that's where the money is" - working with retirees means working with clients who have already accumulated substantial assets, and working with them on the retirement transition in particular means an opportunity to engage a new client when there is "money in motion". Except there's just one problem: really specializing in working with retirees entails far more than just managing retirement rollovers!
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we delve into what it really takes to specialize in working with retirees, with expertise that spans far beyond just creating a diversified retirement portfolio.
In part, the challenge is simply that effectively managing a retirement portfolio, and the distributions that occur from it, is about more than just managing the investments themselves. Because retirement portfolios also have to face sequence of return risk - the possibility that even if the portfolio generates the desired long-term return, if it achieves that return with an unfavorable sequence, ongoing distributions could catastrophically deplete the portfolio before the good returns show up! As a result, the best strategy for retirement income isn't necessarily the one that produces the best return.
But frankly, retirement income issues just scratch the surface of what it really means to specialize in retirement and retirees. There are also issues such as planning for the timing of Social Security benefits, retiree-specific tax planning, making Medicare and other health insurance decisions, health issues more generally, housing wealth and reverse mortgages, housing lifestyle choices and whether to "age in place" or utilize a Continuing Care Retirement Community, handling cognitive decline and the problems that come with it, and even the emotional issues associated with death, grieving, and losing loved ones. These are the issues that retirees face, and need help with - and this is the kind of expertise advisors need to truly differentiate themselves as being retirement experts!
Of course, this all raises the question of how you actually learn to be a true retirement specialist in the first place, and where to learn all of this other stuff? Fortunately, there are some retirement-specific designation programs, such as the Retirement Income Certified Professional (RICP) program from the American College, the Certified Retirement Counsel (CRC) program from InFre, and the Retirement Management Analyst (RMA) program from the Retirement Income Industry Association, as well as specialized training programs, and a growing number of specialized conferences, too. In fact, while there are probably too many "generalist" financial advisor conferences already, we may need even more specialized conferences in the future, to support the increased importance of specializing into a niche!
But the bottom line is that if you want to be a financial advisor who truly specializes in retirement planning and working with retirees, it is going to mean doing a lot more than just focusing on a client's retirement portfolio. It's going to mean developing a much deeper understanding of the strategies and issues that are unique to this specialization!
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Welcome, everyone! Welcome to Office Hours with Michael Kitces!
I'm here in Chicago today giving the keynote session this morning at Investment News' Retirement Income Summit, which you can see right there, talking about managing sequence of return risk in retirement. And when I was getting ready to fly out here yesterday, I was talking to another advisor who made a little bit of a snide comment to the effect of:
"Geez, a Retirement Income Summit. Like, they have a conference for everything now. At what point do we just have too many conferences?"
Now, as someone who speaks at 60-plus conferences per year, I'll admit, we have a lot of industry conferences. Associations like FPA, NAPFA, and IMCA run conferences... insurance companies and broker-dealers have their own events... IRA custodians have conferences... some of the mega RIAs now run their own internal conferences... there are independent groups that run conferences... and now we have media publications like Investment News increasingly offering their own conferences like this Retirement Income Summit.
But that being said, I actually think there's a strong future, particularly in these types of focused, more topical conferences like Retirement Income Summit. Because, you know, a lot of you have heard me beat this drum for years now, but going forward as advisors, we're going to have to increasingly specialize and focus on niches in order to differentiate. And if you really want to specialize, you need more specialized knowledge that goes deeper. And that's like where I think these conferences like a Retirement Income Summit come in. retirement planning is a good example of the need for content and education that goes deeper. Because when I look out there at the landscape, there are a lot of advisors that say, "I specialize in retirement," or "I have a niche with retirees," because they manage retirement portfolios or they sell or implement
Frankly, retirement planning is a good example of the need for content and education that goes deeper. Because when I look out there at the landscape, there are a lot of advisors that say, "I specialize in retirement," or "I have a niche with retirees," because they manage retirement portfolios or they sell or implement retiree-related products like annuities and long-term care insurance. But honestly, I don't think that's what it means to really specialize in working with retirees, not in the kind of way it will take to differentiate in the future.
What It Really Means To Specialize In Retirement [Time - 2:11]
So what does it really mean to specialize in retirees? I'll give you a couple of examples of where I think this goes. Number one is just understanding about how generating cash in retirement really is different than just owning a diversified retirement portfolio that grows over time.
And that was actually the focus of my presentation here this morning as the keynote. I was talking about how investing for the accumulation phase of a retirement portfolio is pretty straightforward. Be diversified, stay invested, let time work for you. And even if markets are volatile in the short term, we know in the long term they tend to average out. So, as long as you stick with it for the long term, things tend to be okay. But that just doesn't work the same way with a retirement portfolio, because once you're taking ongoing withdrawals, you run the risk that even if you are absolutely right about the long-term return potential, if you get there by having a decade of horrible returns and then a big recovery later that averages out, you might run out of money before the good returns come up at the end, or at least you may sort of deplete the portfolio so that when the growth finally comes, there's not enough left to recover. And that's the whole point of
And that's the whole point of this thing that we call sequence of return risk. That it's not enough for portfolios just to average out in the long run, if there is a bad sequence where you might not have enough money left when the good returns show up, which means you need to engage in very different tactics for managing a retirement portfolio that's actually generating retirement cash flows and has the sequence of return risk issues.
Now there are a lot of ways to do this as I talk about in the presentation. So, there are the safe withdrawal rates approaches; there are bucket strategies which segment the portfolio over time or incorporate annuity guarantees to cover essential versus discretionary expenses; there are other floor and ceiling strategies, rising equity glidepaths, valuation-based asset allocation, dynamic spending strategies like ratchet rules and guardrails, and then embodying all of that in a retirement withdrawal policy statement the client signed to commit to the strategy. It's a lot more involved than just investing in a diversified retirement portfolio.
What Else It Takes To Really Specialize In Retirement [Time - 4:14]
But frankly, I think even that still only scratches the surface of what it really means to specialize in retirees and the needs and problems that retirees have.
Other areas that I think become relevant in this future where you really want to differentiate around retirees. For instance, social security planning. Once your payments begin, what are the income tax ramifications when social security gets included in income? How do we plan our other income around the fact that 85% social security might be taxed? How do you coordinate payments between spouses around the earnings test? Special rules like Windfall Elimination Provision and Government Pension Offset or restricted application rules, will they still apply? Special rules for divorcees. At what point does filing for Social Security also trigger Medicare? Do you want Medicare yet? Can you delay? Should you delay? Would there be adverse consequences to delaying? Will they be impacted by the Medicare premium surcharges because they have a high-income year? Is the Medicare coverage alone enough? Do they need a Medigap supplemental policy? Which Medicare Part D policy should they buy based on their health issues, and which prescription drugs they take? And what if they stop working before age 65? What's the health insurance transition plan from retirement until Medicare eligibility?
What about housing wealth? Do they need to leverage the value of their retirement residence as an asset to make the retirement plan work? Should they sell the house and downsize? Do you sell it to a stranger? Do you sell to a family member and lease it back? Do you tap into the equity reverse mortgage? If you're going to do the reverse mortgage, do you do it later when you need the money or do you do the line of credit now so that you can tap it later in case it grows and gets larger, when you don't use the line of credit? Are they even in the house they want to stay in? Can they stay in it? Is it a house that is capable of an aging in place strategy, where they can stay in it as they get older? Are they going to have to make modifications to the home or are they going to leave and go to a continuing care retirement community, and is that a good deal? Are they picking a community that might default as a business? How much will they pay upfront to get in or on an ongoing basis? Or is it better just to modify the home after all? Or should they stay in their home but then go to a nursing home? And then, if they do, which nursing homes in your area are the good facilities? I mean, do they know how to choose? Do you know how to guide them as to which facilities are the best in the area?
You know, there's a lot more to handling later years housing and care needs than just selling a long-term care insurance policy to fund it. And then in those later years, it's not even just about housing needs, it's the health needs again. It's dealing with clients who might start showing signs of Alzheimer's and dementia. You know, what's your process for handling mentally impaired clients? Because if you're going to specialize in retirees, you're going to have them over time.
Do you know the warning signs? Do you have a process for contacting other family members to get them involved when the primary client you work with is having dementia issues? Do you have permission in advance to contact the family members when the client is starting to show problems? Are you positioned to help protect them against elder financial abuse that gets really common when mental capability starts to decline? You know, elder financial abuse now is a major issue in the country, one that regulators are increasingly looking at.
FINRA is now creating new rules that would make it easier for us as financial advisors to report financial elder abuse or even to stop distributions going out of a client's account, if we think it's going to go to the wrong place. NASAA is now working on a similar model rule proposal for state regulation, because the reality actually is that a retirement advisor who really specializes in retirees, might actually be the first line of defense and the first person to spot a problem and intervene to protect a client if you know what you're looking for.
And then there is helping families when clients pass away, because if you work with lots of older clients, they're going to die, they're going to pass away. So, what are you doing for the surviving spouse? Not just planning strategy wise, but do you know how to handle and work with a grieving spouse? To their credit, Investment News had Amy Florian speaking today. Amy is a specialist that trains financial advisors on how to handle clients in grief. She actually wrote a book on this I really recommend called, "No Longer Awkward". Specifically about how to talk to clients who are grieving so it's not awkward, because, for most of us, it will be if you don't have a lot of experience in this or no one has ever trained you on how to do it. And then, there's estate planning, but not just the estate planning strategies, but how do you actually help people settle the estate and transition the assets and their lives after a spouse passes away.
Specialization Mean Adding Value Beyond The Portfolio [Time - 8:30]
I know a few of you are wondering, and I saw one or two comments going by stating, "But were paid on the assets. How do I get paid for all this extra stuff or do I get paid all this extra stuff?" But to me, that's the point. If you really want to add value for retirees beyond just the portfolio, you have to do things that go beyond just the portfolio. It sounds kind of obvious, but I'm always amazed how many advisors start complaining like, "It takes so much more work to do all that stuff, and I don't get paid for that." Okay, then either change your model and get paid for it or just recognize these are the value adds to be taken in the future if you want to retain the assets of affluent retired clients.
But imagine how much more referable it is on the other end when you don't just manage retirement portfolios. When you help with Medicare decisions, Social Security decisions, and housing decisions. These are not only major issues for retirees, these are the kinds of things they talk to their friends about, which means when you provide solutions, they'll talk to their friends about you as a referral, as a specialist.
This isn't even just about adding value beyond the portfolio for charging more and retaining more, but also being more referable. Because again, that's the essence of really being differentiated. "Hey, my advisor's working with me to evaluate three continuing care retirement community deals." "Wow, really? Mine just looks at my portfolio and calls me once or twice a year." That's what differentiation is about in the future.
Learning To Be A Retirement Specialist [Time - 10:02]
Of course, this does kind of raise the other side of this, which is, how do you actually learn to be a true retirement specialist in the first place and where do you learn all that other stuff? The good news is, there are a growing number of retirement designations specifically for working with retirees to help with this. The largest now, at least by headcount, is the RICP program. The RICP program is the Retirement Income Certified Professional and it's provided by the American College, the folks that originally did the CLU and ChFC, and provide a lot of good designation programs.
There's also the CRC program, which is the Certified Retirement Counselor from InFRE, and the Retirement Management Analysts, which is the RMA designation from the Retirement Income Industry Association. In fact, a couple of years ago, Wade Pfau actually did a guest post on our blog, which you guys can find here, specifically just comparing all of those and their strengths and weaknesses.
To be honest, I'm not even sure those actually completely cover everything that I was just talking about and really specializing with retirees, but they are at least pretty close and moving in the right direction. So, if you're looking to get up to speed and go this direction, I would start there. And then there are the conferences. Events like where I am right now! Events that truly focus on working with retirees. Investment News has their Retirement Income Summit, "Financial Advisor Magazine" has...they call it Inside Retirement Symposium. RIIA (the Retirement Income Industry Association) which does the RMA designation, also runs a small retirement specialist conference on retirement planning in the summer.
And then there are even more specialized programs. Amy Florian, who I mentioned earlier, someone that teaches advisors how to work with clients who are grieving, actually does a full two-day intensive if you really want to learn how to handle those situations and frankly, not just not be awkward, but have the kinds of moments where you cement relationships for a long time to come. Curtis Cloke has a program called Thrive University, focused on how to coordinate across all those different retirement income strategies while managing sequence of return risk.
But getting back to the original question, I really don't think there are too many conferences for financial advisors now, at least when it comes to niches and specializations like retirement planning. In fact, I think there are actually going to be more in the future. I do think there are too many generalist conferences, but not when it comes to specializations, and even in something as broad as retirees. With 80 million baby boomers (give or take a little), what it really takes to serve retirees holistically and what it really takes to differentiate yourself requires this kind of education.
And so, I do think events like the Investment News conference here are off to a good start. As this year's event comes to a close, they're already doing registration for next year, and people are interested. The usual deep discount early birds are on www.investmentnews.com/summit if you're curious to check it out. And yes, I'll be back next year as a keynote. Which means I have 12 months to come up with new retirement research that I can share here at the conference.
But I hope this helps. It's just some food for thought about why I think we actually need more specialized conferences like this, not fewer. And just what it really means to be working with retirees to differentiate yourself, and why it's about so much more than just managing a retirement portfolio.
This is Office Hours with Michael Kitces, normally 1:00 p.m. East Coast time on Tuesdays (obviously a little bit late today because I was here and had to do this for the conference), but thank you for joining us and have a great day everyone.
So what do you think? Do we need more focused conferences? Do you consider yourself a remitment specialist? What unique skills are needed for someone who specializes in retirement planning? Please share your thoughts in the comments below!
Kathy Waite says
Fee only financial planning in Canada. For me working with retirees is often a lot about helping them come to terms with their new normal, fear , health and some are not great at dealing with change. Its actually very time consuming but makes the job interesting
will m says
This is an excellent overview of retirement issues, the breadth of which should reinforce that collaboration with a variety of financial professionals is imperative. One sector that continues to lag is mortgage. “Reform” has not changed the fact that there are still no financial education or training requirements to originate loans. While there are a few who have gotten extensive education and training on their own, most loan originators are dangerously ignorant of basic financial concepts. When coupled with the fact that other financial professionals have a very limited understanding of the mortgage system, the result is that there are vast numbers of missed opportunities for borrowers.
Larry McClanahan, CFP®, EA says
Michael, thank you for this. I couldn’t agree more, as this is the group I specialize in. Too many advisors claim to serve retirees but seem to not even know what they don’t know about the needs of the group. I was sorry to see The American College stop offering the CASL (which I hold). It covered most of the ground you mention above and, arguably, was the best designation available on this front.
Michael Kitces says
Agreed Larry. I was very sad to see the American College discontinue the CASL. I suspect they felt it competed/overlapped with the RICP too much. I would have folded them together though… :/
Steve Smith says
Michael, Do you think a practice largely specializing in retirement flexion point and in-retirement planning — done well — as you outline in this piece, is a legitimate niche?
Michael Kitces says
Yes, I do think that’s a legitimate niche Steve, though so many advisors are focusing there now, I would argue it’s becoming a bit ‘broad’ and harder to differentiate. Could you take it one step further? The retirement flexion point for business owners selling their companies, who are having a particular kind of liquidity event and transition? Executives making the retirement transition? A niche with people retiring from a certain profession, where it’s common to transition into consulting for a period of time thereafter, and they need help in the retirement transition, setting up the new business, figuring out what they want to do, determining what they can spend given the additional income source, etc., etc.?
When “no one” else serves a niche, your niche can be pretty broad. The more others show up to do the same thing, the more it has to narrow. Many niches narrow naturally over time – as you end out, by design or by luck, with a certain subset of your original niche, with whom you go deeper. If you’re selecting it proactively, you may need to (or want to) choose at least a little more narrowly up front.