A must read for practice principals

Most financial advisers associate post retirement services with estate planning and aged care. On closer examination, the opportunities in this market are so much more. Clients requiring these services, often baby boomers, are usually (by virtue of their life-stage and prosperity enjoyed over the decades) the top 20% of the client base that contribute up to 80% of practice revenue. Their needs, as they navigate through the life-stages, are varied and complex. 

As a practice principal – you are responsible for charting the strategic direction of your practice – devaluing the importance of post retirement services in planning is a big mistake.


The impact on you and your practice are significant particularly if you are in the majority of practices that has an ageing client base.

  1. Your practice capital value will be devalued if you need to exit or plan to retire in the next 5 to 15 years. As an aside, you need a robust succession strategy that is sustainable in the long term. In other words you need to reduce the dependence on you!
  2. There is a definite threat to practice longevity due to fund redemptions. Many argue that, when wealth transfers, the inheriting generation uses the fund to pay out debt. This may be true in the short term, however these are clients that, without the burden of debt, then grow into ‘A’ clients. The same applies to larger estates when some proportion of the estate may go towards paying off debt, but the remainder can still remain under management. You need a relationship with these clients nonetheless.

 

 

Consider the following facts:

  1. In 2012 the first of the baby boomers entered retirement age. Many continue to work either part time or in hobby businesses. These clients are poorly serviced because of the industry focus on pre-retirement by transactional advisers.
  2. The bulk of practice wealth is controlled by this generation, a fact that has mostly been ignored by the industry. This is a group that can still expect to live for an additional 10-30 years. Many are active, healthy and engaged and have not ‘slowed down’ which goes against the basic industry recognition of their financial requirements.
  3. The wealth of this generation is entering a new phase where accumulation is going to be replaced by wealth redistribution in the following ways:
    • Retirees are withdrawing funds from superannuation at record levels, which really started to escalate in 2012. 
    • Many are unprepared for retirement and may die early creating estate wealth redistribution. 
    • It is expected that 50% of SME's will be sold or wound down in the next 10 years creating a massive transfer of business wealth to private. Family Business Australia estimates the wealth of family business at $ 4.3 trillion. It is estimated that 81 % of owners intend to retire within the next 10 years which will result in a wealth transfer of $ 3.5 trillion. 
    • As people age they can question the complexity of real estate in their investments portfolio because dealing with tenants and real estate agent can become too difficult. 
    • Many aging clients sell their family homes to:
      o Down size and provide funds to supplement their retirement
      o Fund age care accommodation
    • Generational wealth transfers occur on the death of a client. 
    • Estate capital is placed into trusts to keep family wealth within the bloodline. 
    • For those that can afford it, the establishment of philanthropic foundations are becoming more popular.
  4. There is still a requirement for financial services by most retirees – a fact that is not often recognised by the market that focusses on pre – retirement services. 
  5. Clients underestimate the importance of financial services during retirement and financial advisers do not educate or demonstrate the value of these services adequately to them.

 

The redistribution of wealth will be in the trillions of dollars in the next 30 years (don’t forget it started 2 years ago). 

 

The key question is: How are you- the practice principal - positioned to profit (lose) from this generational structural change?

 

We cannot assume that the post retirement wealth will remain within your practice because, as the primary client dies, or their capacity declines, in most instances, the family play a role in the decision making process.

It is not unusual at this stage for the next generation’s advisers to become involved, closing out the current practice relationship. The simple answer to this potential problem is to make a decision, as soon as possible, to work with the family as the client in consultation with the primary client.


The long term strategy for some practices is to maintain their fund accumulation pre-retirement positioning working with the next generation.

 

This strategy is not without its potential risks, as those with middle aged children will realise.

  • The baby boomer generation did not have as many children as their parents.
  • This generation, on average, are marrying and having children 10 years later than their parents, limiting their peak savings stage for retirement.
  • Middle Australia is being squeezed with record housing, living and utilities costs, making it very difficult to save.
  • The next generation is going to have to fund the over promised government entitlements to the baby boomers, further placing pressure on savings. The implication is that taxes must increase in the next decade and beyond.

 

The baby boomers have enjoyed mostly times of prosperity. Many doubt this will continue for the next generation. The planning industry has also enjoyed these buoyant times and most strategies are based on the assumption they will continue.


How and where do you begin?


There are some key strategies that will provide you with the comfort that you have all contingencies covered.

  1. Develop a strategy to retain control of the wealth in your practice post retirement. You have worked very hard to put it there so why allow post retirement (diminished capacity) and estate redemptions eat away at your base? In addition, it is not a totally defensive strategy, but one where you can grow your base through taking advantage of wealth redistribution e.g. sale of business and property asset, trust and estate administration, philanthropy and the next generation prospecting.
  2. Move your next generation target market from the middle market to the SME, professional markets, because this market has the ability to save and pay premiums on life risk products. The aim is to offer a "whole of life" service to these clients and their families, avoiding the current problem may practices find themselves in. Whole of life service can be defined as having a balanced approach to fund accumulation pre – retirement and fund redistribution post retirement.

Many practice principals fail to recognise the growth opportunities in their ageing client files.


Most baby boomers need assistance with the challenges faced when moving from wealth accumulation to planning for wealth re-distribution. An adviser that develops and nurtures a relationship with the ageing client and their family can help clients manage, plan and ultimately transfer assets to their beneficiaries.

This requires:

  1. A practice strategy that provides a roadmap for seamless client services through all life stages, supported by committed staff, clear processes and systems
  2. Comprehensive client service plans that outline objectives and the means to achieving their goals for active retirement, declining capacity and their estates (including philanthropy), as well as providing education and support to the inheriting generation within their families.

 

Estplan had developed a comprehensive, turnkey post retirement services implementation system. We recognise that, in addition to post retirement competencies like intergenerational wealth, succession planning and aged care, your practice also needs structured implementation support, tools and assistance to enhance your practice strategy.

The rationale behind the Estplan 3rd Age Solution is that it will help practice principals plug the gaps in their post retirement and next generation strategy and, by developing a strategic point of difference, ensure practice longevity.

We welcome your suggestions and opinions on the article. Call on 1300 378 752 or This email address is being protected from spambots. You need JavaScript enabled to view it..