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Clients Want a ‘Dashboard’ Approach to Retirement Planning

It’s too hot. It’s too cold. Our politics are turning too conservative; our political situation today is way too liberal. But – compared to what? What’s the standard by which we should measure such subjective observations?

Many of our sensitivities – whether to temperature or political rhetoric – are relative rather than absolute. I enjoy a much cooler environment than my wife does – and one man’s political passion is another’s rant! Also, because information travels so freely and quickly today, our subjective inclination is to react to the immediate rather than the longer term.

One of the areas in which such subjectivities are obvious in my business life can be seen in clients’ and friends’ reaction to “the Dow” or “the S&P” or – you choose the index to follow. And depending on the direction of the tweets and twits of the day, we may be driven to irrational exuberance (or abject desolation). If the Dow is up 100 points, our economic spirits are lifted; conversely, if the Dow is down 2 percent (a really bad day), we despair. Yet those indices probably have nothing to do with our retirement prospects or other long-term goals.

To test the relevance of market indices on my own retirement portfolio, I occasionally will go to my online brokerage account to measure the degree to which the broad index has anything to do with the specific deployment of my investments, based on my investment policy statement and the asset allocation and risk tolerance it describes.

And you know what? Most of the time, the change in the index is larger than the change in my portfolio.

So how can we help our clients get their focus away from indices and on to something that’s more relevant? My initial thought was to attempt to put together a customized index – I’ll call it the “Weber 23” for the number of fund accounts we typically have in our portfolio. But because of the way the funds are managed, sometimes values aren’t “marked to market” on a daily basis – and besides, it’s too much trouble; I can just look up the value in my account.

But there is a broader issue here in terms of being driven by indices instead of what’s really important to me and  my clients. So I’ve started to ask clients: What’s the most important thing about retirement? Is it retiring on a specific date or retiring with a specific minimum amount of reasonably assured income?

Some clients are very focused on a date. The client says, “I will retire on my 66th birthday, and I’ll just have to hope that my retirement nest egg and its growth will be adequate to keep me and my spouse in the style to which we’d like to become accustomed.” I can then say in response, “Great! Let’s manage to that objective! So every quarter, in addition to the normal reports you receive from the custodian, we’ll send our own simple report. It will say: ‘Last quarter we projected that when you retire on your 66th birthday, you could begin living on an income from your retirement resources of $8,950 per month with a 95 percent probability those resources will support you to age 95. This quarter there has been some softening in the sectors in which you’re invested, and the number now projects to $8,875 per month with a similar probability of success.’”

The other scenario is one in which the client is focused on a specific amount of retirement income. He says, “I’m willing to work until my income needs are assured. I want no less than $15,000 a month – and I’d like you to tell me when you think I can stop working and begin living in the style to which I’d like to become accustomed!” And once again, I get to say, “Great! Let’s manage to that objective! We’ll send our own simple report. It will say: ‘Last quarter we projected that to reach your objective of $15,000 a month, you would need to work until you are 68 1/4 years old to have a 95 percent probability that your resources will support you to age 95. This quarter your investments have been doing reasonably well. Based on that kind of calculation – which, of course, will change modestly from quarter to quarter – you may get to enjoy retirement one month earlier than was projected in the last quarterly report, with that same probability of success.’”

By contextualizing the natural ebb and flow of account values to a retirement goal, we have enhanced the client’s overall perspective and amplified the value of the advisor-to-client relationship. At the same time, we’ve desensitized the client to the impact of ongoing swings in major indices that might otherwise give the client good or bad “vibes” regarding prospective retirement. We can provide the client with a reporting approach that produces a sense of “How am I doing?” And it beats Xanax!

It sounds logical, but when I mention it to advisors, their initial reaction is, “It’s too simple!” My response: “Exactly!” Sometimes we advisors fall into the trap of providing more and more elaborate reports, in part to provide information, but perhaps also to justify the value we add in our own minds. I find that when it is offered, clients do want just a “dashboard” approach:  How fast is my progress to my destination, when can I reasonably expect to get there and will I be safe? That’s what we call “client focus.”

Richard M. Weber, CLU, MBA, AEP (Distinguished), is past president of the Society of Financial Professionals. A 45-year veteran of the life insurance industry, he is a consultant to insurers and their agents on the topic of effective and ethical selling. Contact him at [email protected] [email protected].

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