Financial Advice for Everyone?
One short-term argument for a coming boom in advice is simply the state of the markets. Shell-shocked investors are largely still focused on cash and bonds. With the Fed holding rates close to zero, this approach may not even keep pace with inflation. Comparing the spread between 30-year T-Bills and inflation rates, one financial journalist pointedly asks, “are you willing to sell your clients an investment product that earns 1/8 of a percent a year for three decades?”
Our position has always been that managing inflation risk is just as important as any of the more dramatic downside risk in a portfolio. The only way to do that is through diversified asset allocation. And the only really prudent way to do that is through professional advice.
During the long boom all it took to get investors into equities was a website and a few commercials with a sardonic baby. During a painfully slow recovery it’s a tougher job, even if stocks happen to be massively underpriced. What will work is a more thoughtful methodology than the talking-baby model, delivered from a trusted source.
Looking at a much longer time scale, one observer believes that we’ve entered the “greatest bull market in the history of advice.” The driving force is a double dose of the Baby Boom effect. As we’re all aware, this well-known demographic is becoming more concerned about their finances, and more interested in advice, as they approach retirement. In addition, their “Echo Boom” children now are mostly in their 30’s. By the numbers they save more than their parents did at that age. And by temperament they’re not counting on Social Security or pensions for their retirement. They know they’ve got to do this on their own.
They may not be ready to sit down with a live financial advisor. Fortunately, they don’t have to. The convergence of a generation of consumers reaching financial maturity, a culture that embraces online delivery of almost anything, and a challenging investing environment may well mark the real beginning of the Great Advice Boom.
Short Attention Spans
Note the word “consumers,” however. Echo Boomers look to their employers primarily for employment, and hopefully medical coverage and a DC plan. For just about everything else they look to the market. To reach them where they’re comfortable, the retirement industry is venturing out of its comfort zone into the retail world.
To judge by the range of providers, an advice boom is very much underway. All kinds of new tools are available today, with more launching seemingly every day. They promise to do household budgeting, financial planning, retirement planning, investment guidance, retirement income, and more. But on closer inspection most of these options are rather limited in the scope of what they can do, and don’t play well with others. Nothing even comes close to managing all aspects of the retirement picture.
The reason is simple: it’s very difficult to put all the pieces together. This is hard, complicated stuff, particularly on the transactional side. To paraphrase an adage, you can have easy, effective, or free: pick any two.
But real people want all three – if not for free then at least very affordably. They’re saying “just make my finances work for me.” And they want it now: rightly or wrongly, the culture of there’s-an-app-for-everything and our own marketing have created some very high expectations. These will likely be followed by disappointment (remember “virtual reality?) and distraction by some other concern. As an industry, we need to get this right before we lose the opportunity.
Has the boom begun? As always, your comments are welcome.