3-Step Intervention Helps Clients Act on Complex Money Issues

A Stanford study says these steps and life coaching can persuade procrastinating clients and prospects to make sound retirement decisions.

By Ed Prince

Many Americans heading toward retirement realize they’re doing a poor job of planning for life after their careers. They rely on their gut rather than doing the necessary research, but acknowledge they would be better off following expert advice.

What’s a financial advisor to do?

A new study by the Stanford University Center on Longevity presents those and other findings and offers a wealth of recommendations for financial professionals.

A key takeaway of the study, “Disconnected: Reality vs. Perception in Retirement Planning,” is that financial advisors need to broaden their toolkit and serve as life coaches, says one of its authors, Steve Vernon, consulting research scholar with the Center for Longevity.

For example, he says, an advisor might urge a retired client to reduce living expenses early to avoid a financial crisis later that could force traumatic decisions like severely cutting spending or selling their home.

“Because what I see happening a lot with my older friends and relatives who are in their late 70s and 80s — they postpone these hard decisions, and then their backs are against the wall,” says Vernon.

Shared concerns

The “Disconnected” study features a survey that asked 2,000 people ages 50 to 74 about their retirement planning, including how early they started, the extent of planning, barriers to planning, financial concerns and ways they could be persuaded to plan better. It offers a range of psychology-based techniques that financial advisors and others can use to move people along the path to better retirement planning.

The survey mainly targeted people with wealth ranging from $100,000 to $1 million, although some higher-net-worth individuals were included, Vernon says. The survey found that people at all levels shared the same concerns.

“By and large, they worried about the same things as the lower-income folks,” Vernon says of the wealthier individuals, “meaning they want to make sure they don’t outlive their money and want to avoid high bills for medical and long-term care. So, the concerns were universal, really, in general sense.”

But wealthier individuals reported better planning and more peace of mind.

“The high-net-worth people were less likely to be worried, and they were more likely to get help from a financial professional and are more likely to have a plan to address it. And for me, that  having a plan, having an advisor is a good thing, because you feel more confident,” Vernon says.

Less wealth requires more planning

Another key distinction, Vernon noted, is that for individuals with more than $2 million in assets, retirement planning is mainly about investing. For everyone else, it’s also about a multitude of other factors, such as the financial impact of when to retire, whether to work part-time, when to take Social Security, and how to draw retirement savings. And that’s where the Stanford report’s findings and recommendations can be useful for advisors, he says.

“Once you get above 2 million and higher, you can live off investment income and then you don’t have to worry about running out of principal,” he says.

“But under the $2 million mark, when to take Social Security is still very important. How to draw down your assets is still very important. … Like (whether to) buy an annuity — buying an annuity is more important for the target audience I’m talking about. So, what’s kind of interesting is that the decisions are more complex for those in the under-$2 million groups.

“It’s kind of ironic that the wealthier you are the simpler it gets,” he says.

The majority fail to plan but want to

Most of pre-retirees and retirees surveyed reported having “modest” retirement savings, with the median value at $128,000, according to the study, and most of the pre-retirees won’t have enough to retire full time at age 65 under their pre-retirement level of spending.

But the study found that while many people admit they are not adequately preparing for retirement, they do not take the necessary steps. Six out of 10 respondents feel they should have done more planning than they did, and almost three in four pre-retirees and retirees want to do more planning in the future.

“When people face complex decisions and are confronted with challenges and barriers, a natural reaction can be to take shortcuts,” the study’s authors wrote. “Instead of spending time doing their research, they rely on untested beliefs or hunches, take the advice of others who may or may not have the necessary expertise, or procrastinate as long as possible, potentially limiting their available options.”

That’s why using persuasive techniques is important, the authors said.

3 key steps

The study offers a three-stage framework for organizing interventions and messaging to help resolve the “apparent disconnects between what pre-retirees and retirees want and the actions they are (or are not) taking”:

  • Engage and educate. Draw attention to the importance of making the decision and motivate them to spend time to learn more about their options.
  • Guide. Provide a step-by-step approach to address the various decisions they need to make.
  • Enable. Address, mitigate, or remove any barriers to making each decision.

Underserved group

Ironically, the people who need the services of a financial advisor the most are less desirable as potential clients, Vernon says.

“One of the themes is the middle-income retirement group is an underserved group; they need financial advisers. … So, I think it’s a dilemma for financial advisors, but nevertheless, there is an underserved market that some institutions or some advisors might view as opportunities,” he says.

A key to persuading clients to make hard but necessary retirement planning decisions is persistence, the authors wrote.

“One way to do that is through periodic reminders and encouragement that break through the avalanche of distrac­tions. In addition, because it can take substantial time and effort to make the many decisions that pre-retirees and retirees face, these reminders and messages of encouragement can help them keep on track,” the authors said.

You’ve got to motivate your clients and almost not take no for an answer when a client says, ‘I don’t want this pressing.’” 

—Steve Vernon, Stanford Center on Longevity

Vernon puts it more bluntly: “How do you encourage or prod or poke — or whatever the word is? You’ve got to motivate your clients and almost not take no for an answer when a client says, ‘I don’t want this pressing.’ Well, diplomatically, if you can come back to it over time, keep encouraging your clients to think about it, because these questions are potential solutions; they can be hard and yet necessary,” he says.

He reiterates that advisors need to expand their practice. “There are two elements to being more than an investment advisor. One is expanding your financial scope. Do I buy an annuity or not? When do I take Social Security? When do I retire? Should I work part-time for a while? These are all financial strategies,” he says.

“Now, the working has lifestyle implications also. So, they first have to broaden their toolkit on the financial strategies that they’re advising on, but then once they’ve done that, they still have to broaden their toolkit on being a coach and how to persuade people to make decisions that might be difficult. And also, just take time for their clients to process.”

In a four-decade career in journalism, Ed Prince has served as an editor with many of New Jersey’s leading newspapers, including the Star-Ledger, Asbury Park Press and Home News Tribune.

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