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- [00:01]
A
Because you're a subscriber to this Bloomberg podcast, we thought you'd be interested in a sponsored podcast called the Great Client Transfer, produced by Prudential and Bloomberg Media Studios. Here's a recent episode.
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B
Welcome to the Great Client Transfer. If you're a financial advisor, I'm sure you've heard about and thought about the great wealth transfer. This is an inflection point where there's a huge opportunity to try to solidify a new generation of clients. However, when the money moves, there's a very good chance your clients will move too. Demonstrating true understanding of how this new generation thinks about wealth and retirement will be essential. Today we'll discuss the data behind the wealth transfer and how financial advisors can make the most of this moment. I'm Maggie Lake, a financial journalist, and I've heard experts opine on this issue for years. But today I want to boil it down to some hard facts and, and actionable ideas. To do that, I've put together a fantastic panel. We have Chelsea Ransom Cooper, a financial advisor with Zenith Wealth Partners who's actively working to retain current clients and attract new ones. Brittany Castro, a financial planner, will offer a behavioral finance perspective for our conversation. She's here to decode the why behind a lot of client actions we've been seeing. And we have David Blanchett, the head of retirement research for, for Prudential Financial and portfolio manager at pgim. So welcome everybody. It's wonderful to have you here in person.
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C
Thank you for having us.
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D
Yeah, great to be here.
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B
This is a really important topic, so I think we're gonna have some fun and hopefully give some people some stuff to learn about. David, Prudential has done a lot of research on this great wealth transfer. What's the research telling you?
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A
I mean, it's a really big number, right? According to a Cerule report, over a hundred trillion dollars that's estimated to be transferred to generations in the next 25 years. So I mean, we're talking about just this tremendous opportunity and this risk because if you look at people when they're asked like, are you gonna stick with your parents Advisor? Only about 19ish percent say they're gonna stay with their advisor, you know, going forward. So I think that what this creates is just, is just this question like, how are you preparing as an advisor to meet this new possible demand?
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B
That's a shockingly low number. I think. I was not expecting to hear that. Brittany, you focus on the behavioral part of finance. Why? Why is that number so low? Why do people feel like they have to make a change.
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D
Well, I think for so long, they feel unheard or unseen by the financial advisor. Especially in this scenario where it's the next generation. They probably are looking at that advisor as, like, no offense, but old dinosaur. Like, they're not talking to me in a way that makes sense. They're not, like, relating to me where. Where I'm at with my goals, with my different lifestyle. I mean, planning is a lot different for millennials and younger than it is for the baby boomer generation. So if they're feeling unheard, unseen, uncomfortable, asking questions of the person that they're supposed to hire as their professional, of course they're going to leave and find somebody who is more relatable, who can help them where they're at, help them feel empowered, not feel bad about the decisions they've been making with their money up until that point.
- [03:21]
B
And that I find it surprising because there is. It's a big, important thing. It can be stressful. So you would think continuity would be the easy path, the path of least resistance, but they're blowing it up and saying, I want something different. I want to find a change. Are you seeing that?
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C
Absolutely. I'm seeing it with a lot of the clients that are even coming to us right now. So I worked with a family who was going through the similar situation, and as they were planning for their wealth transfer to their children, the children met that advisor. And when they walked out of that meeting, they're like, this is not our guy. This is not our person. It felt like a dinosaur, to Brittany's point. And they wanted somebody that could actually understand where they were coming from based on where they were in their life as millennials. So I think that's the element where they decided to look for somebody on their own and. And then start to have family conversations with this newer advisor, AKA me, instead of that traditional advisor.
- [04:12]
B
This has to be a tough statistic for some to hear, because I certainly know when I talk to people who work so hard trying to grow their net assets and have something to leave for the next generation, they've worked so hard, they want to protect their life's work, and they want to make sure that it is able to transfer in a seamless way. But now we hear this, there's this big disruption.
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A
So I think that for better or for us, a lot of times when we're talking about portfolios and financial advising, we're not focusing on households, we're focusing on individuals. And perceptions of what matters really differ across men and women. I think Men are much more interested in things like protection. But if you look at surveys out there, there's these huge gaps that exist in terms of what advisors think they're doing for their clients and what people actually report. According to an alliance For Lifetime Income PRIP study, 62% of advisors think they're talking about protection with their clients. Only 27% do. And so I think, I think it requires being intentional understanding, like where your strengths and weaknesses are. Because if you, if you don't have a plan to, how to, how to engage, you know, the spouse, the next generation, like, you're going to be part of that 80%, not the 20%.
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D
And I've heard it so many times in my career where women would leave the financial advisor after the husband died or passed away because they didn't feel seen or heard that entire relationship. And so while the advisor thought it was a successful relationship, the client immediately, when she had the chance, she left.
- [05:36]
B
Chelsea, this is interesting because you're on the front line on this. Is it that the advisors are not talking about it or that the clients aren't hearing everything they're saying?
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C
I think it's a bit of both, because I think as advisors, we're taught a way on how to deliver advice and how to have conversations with individuals to make sure that we're, you know, dotting all our I's and crossing our T's when it comes to retirement planning, estate planning, and protection. But if they're not receiving it because they are just not prepared for that conversation or they're not ready, well, then we're missing each other. And I think that's something pretty common where we're doing something because we know this is important to have this conversation, but maybe they're not ready to receive it yet.
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D
It's a huge problem. And I think for financial advisors, when they start to realize the value that they bring to clients is more about helping that client make decisions, helping them feel empowered with their money, excited, confident, versus putting the data in front of them. They'll say everything in one meeting. We go over cash flow, tax planning, retirement planning, estate planning, all of it. But it is so much information. And remember, money is emotional. So what I retain in a meeting, even if you told me everything, I'm filtering through my own history, my own emotions, behaviors, mindsets with money. So maybe I walk out of that meeting only hearing 10% of what Chelsea told me. Me that's a problem. So what advisors can do to help combat that is also just deliver it in short forms. So we have to remember that as financial advisors give clients information in bite sized pieces, have more meetings, more regularly, talk about only one or two things at each meeting, that's going to help the client so much more than trying to dump everything in one meeting.
- [07:16]
A
Right. So I mean I'm, I'm an investment guy. I love me a good portfolio. But a portfolio is one very small component of achieving a financial goal. I think what we're seeing is this evolution in our profession away from advisors defining their value proposition. As I build portfolios to I help you accomplish your financial goals. Right. And that's retirement, that's everything. And to me, like, that should have always been the focus, but it hasn't been. And it does require advisors to think about how are they going to rise to the occasion and do this.
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B
How do, do you see that? How do you deal with that?
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C
I absolutely see it, especially as I'm training the newer advisors on our team as well. Because there's so much pride when you build that financial plan, right, and you have all your pages and you know all the math works and you show it to them and the client is just not as excited as you are. And it's like, why are they not as excited? It's like they're not emotionally connected to all of this data you're putting in front of them. So you have to find a way to tie it to their values and what's important to them. But I also encourage advisors to ask two really important questions. The first one is what does wealth mean to you? So when they talk to a new client and they're starting to build that rapport, really understand, you know, their relationship with money and what wealth truly means to them. But also what does financial success look like in having a relationship with a financial advisor?
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D
And I think financial advisors have to be willing to go to that place with clients which is more emotional intelligence versus just data. And so even having that open mindset like David's saying, there's things you could do, you can learn skills to talk to your clients in a different format. Like there's financial coaches or bring in a financial coach if you don't know how to, how to have these conversations. But being that holistic, you know, it's more than just numbers. It's their life, it's their dreams, it's their family, it's like what they care about most. And like Chelsea was saying, and when you connect those two, they're going to be so much more motivated to one, implement. But then two, sing your praises and get, you'll probably get a lot more referrals.
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B
And that story may be different than the original client.
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A
We talk about gaps. According to the alliance for Lifetime income peer report, 70% of advisors say they, they frequently discuss how their clients are going to spend their time in retirement. But, but clients report only 29% have those conversations. Right? So like, I mean, retirement's about a lot more than money. And I think if you're not talking about like how you're going to fill your time, how you're going to structure what you have to maximize that time, you're not doing the best job you could.
- [09:43]
C
And I think it's a hard conversation for a lot of individuals to have to really think about that behavioral component of what are you going to do in retirement and what's next. And I think sometimes clients are so eager to work towards that goal where they can, you know, get out of that nine to five or quit the corporate rat race that they're not actually thinking about what are they going to do in that time. So they still feel fulfilled in all the other elements of their life. But I think those are the core pieces that we need to focus on to make sure that their values are mapped to, to their financial plan and that roadmap.
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A
I don't love the word retirement because I think it has negative baggage. I like the word financial independence. You know, like think about if you were to be financial independent, like, how would you spend your time? Like, I like that question more because I just like, maybe it's just me, but I have like people golfing or going on. I don't know that. Imagine when you don't have to work, what would you do? I think that's a better way to think about the end of life stage versus quote, unquote, retiring.
- [10:36]
D
I think that's also a great point too for financial advisors to start to pay attention to the language they're using with clients. Because I agree, like the next gen millennials and below are not thinking about retirement. We're thinking about, well, let's find something that we enjoy that we can have financial independence. Yes, but even the idea of stopping working seems kind of like very odd.
- [10:59]
C
And that's exactly what a lot of my clients talk about because they are first generation wealth builders. And the term they'll use is a work optional lifestyle where they're working for their passion because they choose to and not because they feel obligated to. And that's really the number that they're working towards is where they have that peace and that flexibility in their life.
- [11:20]
B
David, the other thing that Prudentials research has touched on is a confidence gap. What do you mean by that? What does that mean?
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A
Yeah, I mean, you know, you could call it a gap or a paradox. You know, there's this, like, people don't always have the best assessment of where they are financially, what they should be doing. There are large gaps in what you call like subjective and objective knowledge when it comes to finances. According to Prudential's latest Pulse survey, about 90% of mass affluent Americans think that they're on track to cover their essential expenses in retirement. But only about 40% of people have an advisor. Only about a third have a financial plan. So there's kind of this misalignment from where folks think that they're in a really good spot, but the data might suggest otherwise.
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B
Brittany, can you help us make sense of that? Why? How can you be confident and have no plan at the same time? Those two things seem like they would be polar opposites.
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D
I think a lot of people have this with their money, they might know what to do, they might think they know what to do, they might research everything what to do, but they don't actually do it. And that is for many reasons. I think money, like I said earlier, is super emotional for people. So there's a lot of concepts, a lot of mindsets, a lot of scripts that we inherit from parents, from family, society, school, and to really get clear that yes, you can have a crystal clear plan in place, but that doesn't mean you're actually going to implement or behave in that manner with your money.
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C
So oftentimes when I work with clients, sometimes they'll come to us because they feel obligated, because this is the thing to do. I know I should talk about my finances. I know I should have an advisor. But deep in their soul, they're really not at that place yet where they're ready to do the work or actually engage in like taking care of their finances. And, and that is okay, that maybe that's not their moment yet. But it's really hard to work with somebody if they haven't reached that phase and they know what their internal why is. So I think there's an element of, as advisors, we need to do the work to make sure that we're bringing the knowledge and the empathy to the table. But I think clients also need to internally know their why too, of what they're building, why they're building towards these goals so that it can really be a really good Partnership.
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A
You know, I think what we often overlook is that like we've kind of solved inertia for people. An accumulation where now we have default. You know, talk about behavioral finance, like, you know, automatic enrollment, default savings rates, you know, targeted funds. All these things make the default path easiest as you get closer to retirement. Like, you have to start making decisions. Yes, right. And so I think like, that's where advisors are so valuable because like, you can't not make decisions or you'll make the wrong ones. And so all of a sudden, you know, like this, this, this knowledge gap. Well, like we're kind of creating an environment to where you don't have to be very knowledgeable to build wealth. But then how do you, you know, how do you then figure out how to decumulate that? That's an entirely different skillset.
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C
I actually was talking to a client recently where they're about two years out from retirement. And just the thought of pulling money out of that account where they work so hard to see it grow every single year, and now the element that we are pulling money out so that they can live off of it was. It was a tough conversation. We had to have an in depth meeting about like that feeling and why there is so much hesitation around this. When we had run the plan and the analysis that they were okay. So I think those are the elements of having somebody in your corner. It's just so important. The work that we do as advisors,
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A
they need more help than they often realize.
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B
So what should financial advisors be thinking about doing next week? How can they make the change? What do those changes look like?
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D
One, have an open mindset. I think learning is something that you have to constantly be willing to do no matter what age you are. And that's just because of the world we live in with technology AI, it's constantly changing things. So we all have to have that open beginner's mindset. And for a financial advisor, if they go next week, look at their practice, look at how they're communicating currently with their ideal clientele, maybe start to identify, are there just terminology gaps? Like instead of saying retirement, should we start saying financial independence? You know, in our marketing and in our meetings with clients, I think these
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C
are the elements where if we're missing people consistently, they're looking for somebody that is using the same language that they're using, but understands the trajectory that they're trying to go and can meet them on that path.
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B
So you have an audience of financial advisors listening. Some are earlier in their career, some have a very well established book of business with well heeled clients. What should they know?
- [15:42]
A
You know, if you look at surveys of financial advisors in terms of, you know, threats that they perceive or challenges, client acquisition is first followed by intergenerational transfers. And so they're kind of acutely aware of that. They need to get more business and they need to retain the business they've got. If you've built a business doing something for a certain subset, I think there's a really good chance that that might work for a few more years. But to be long term durable, you have to be able to meet with the next generation. You've got to have different paths to offer services. I think that requires like a team model and just doing more than what we've seen. I think there's been a really exciting evolution of our industry over the last at least two decades in terms of being more holistic. More advice. I think that has to continue and it's easier, more now than ever given the tools we're seeing being created.
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B
Yeah, I heard you say yes emphatically.
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C
And I think the team based approach is so crucial because we can't be everything to everyone. And that's naive to assume that. But we want to make sure that we're able to add the right people on our team to make sure that we can connect with different individuals. So I always say, you know, trust is earned and it's not just your credentials or the performance you're able to get a client, but it's really being there in those moments and having people on your team that can connect with other members of their family or different groups that you just may not be able to connect with.
- [16:52]
A
I mean, I think it's important to just acknowledge where you are on that spectrum. Right. If you've got a bunch of younger clients like you should be in attack mode. Right. You should build the infrastructure to engage the next generation to get these clients as they, as they gain wealth. If you have an older, larger book of business, how are you actively protecting it? What are you doing to make connections to the spouse is to the next generation to ensure that you know, when things happen, you're positioned to actually maintain those assets.
- [17:22]
B
To bring it all together. The world that financial advisors work in is changing in a couple of key ways. The people who will be their clients in five years probably aren't their clients today. They need to be ready and receptive to this new group of investors. And this new cohort will wants an advisor that's available, empathetic and adaptable. If that describes you and your firm, then you're in good shape moving forward. Thank you to David, Brittany, and Chelsea for being with me today. Thank you to Bloomberg Media Studios and Prudential for producing and sponsoring this episode. I'm Maggie Lake. Thanks so much for joining us.