Deaccumulation Needs set to provide strong tailwinds for advisory practices
Yesterday I had a brief walkthrough of a financial planning software platform. The solution had all of the expected attributes, but the most standout feature that was demonstrated was the application that was built to assist an advisor with managing de-accumulation. Although advisors often are onboarding and engaging with clients as they start to envisage their own version of retirement, advisors generally show their greatest value in the stages just before retirement and during the entirety of the retirement cycle.
This has been reinforced by two factors in the past three or four years. First, longevity risk has shifted to the right – in other words, both men and women are again starting to live longer with the investment in aging suggesting that within 30yrs up to 25% of the population engaged with advisors could extend their lives into the mid 90’s and beyond. This represents an investment horizon shift of at least 10yrs for many people who want to both maintain their lifestyles for longer as well as prepare for the uncertain costs of old age care in its many forms. Second, philanthropy and contributing to the overall sustainability of the planet has become a much more considered aspect of estate planning than just the legacy in relation to intergenerational wealth transfer.
At one point, it looked like IWT, in its many guises would provide the greatest tailwind for advisors, as it represents a huge transfer of wealth from the second largest population cohort to what is now the largest cohort; and due to the level of asset prices, and the challenges with pension contributions probably still will, but I also am seeing with the way deaccumulation and pension freedom rules around the world are shaping up that baby boomers are going to have their own vision for contributing to sustainability and that increasingly regulation is going to evolve to offer different ways of making this tax and capital efficient. This will thus create additional ongoing fee opportunities for advisors who have the right skill sets and tools to fulfil this within the entirety of a deaccumulation plan.
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The realities of clients that could be more profitable and active between 60-85 than was previously thought creates some interesting knock-on effects within the advisory market that are worth pondering for a moment. First, for those firms that develop their own academies and nurturing programs that combine the most experienced advisors (who often have the largest client banks) with the promising advisors in their mid to late 30’s, it creates an opportunity to monetize their business value in more flexible ways than just through outright disposals. There are already network operating models thriving in the states that support advisor firm longevity, and if one puts these concepts together with a broadening of expertise to serve older and wealthier clients through the entirety of the deaccumulation and legacy process, one could clearly see entirely new practice multiples for those who want some benefits from shared services and centralized investment proposals emerge. Second, it actually encourages advisory practices to further build their expertise in the full spectrum of retirement related services. It has always been true of course that for many wealth firms 70%+ of their revenues are directly connected to advisory and fulfilment capabilities in relation to pensions and retirement, but even as rising rates encourage some capital flow into fixed and variable annuity structures (from the few players lifeco’s that still offer them), one can see practices increasing the scope of their service offering toward more areas that unlock asset values, lengthen steady income streams, and bring together end of life capital legacy objectives with a multitude of personal and familial objectives.
The principles of the “100yr life” book aren’t quite upon most of us approaching the retirement age band (60-70) yet, but as I witnessed in the demo of financial planning software the other day, the pace of development and focus will not only be on how one encourages and enables early wealth accumulators to properly build, manage, and deploy capital for many of life’s most cherished and repeated events, but also on how the combination of technology, product innovation, and human advisory services will tackle the later years, where the cycle of life and the needs of our society must both be equally well served. As we hopefully leave the shadow of the pandemic behind us and all of the known and unknown disruptions it has caused, longevity may surprisingly emerge as the biggest boon to the wealth industry.
Managing Partner | Thought Leader | Investor | Public Speaker
1yThanks for sharing!
CEO/Co-Founder of PlannerPal - The Financial Planner's AI Assistant - Save time. Focus on what matters.
1yGood read. Thanks Roger Portnoy