In today's market environment, financial professionals should ask themselves a simple question: What kind of growth have you seen in the last five years? The question is timely because, discounting market appreciation, 61% of financial professionals have actually experienced negative business growth since 2016.
While the study behind this statistic was conducted in 2021 — well before the market declines of 2022 — one still has to ask: Where is the money going?
There are the usual suspects. Clients swapping financial professionals and clients passing away account for 14% and 16% of asset outflows respectively, according to Cerulli Associates. But the lion's share — more than double any other factor — is from clients taking income. In fact, this accounts for 40% of asset outflows.
Over the years, financial professionals will help their clients formulate an asset allocation strategy, which of course is an essential aspect of asset accumulation. Equally important is this: As people approach and cross the threshold of retirement, focusing on asset decumulation and the longevity of money — LoMo — is critical, since clients will move 90% of their assets to the financial professionals who help them build income plans.
To address this, it's helpful to study the insight of economist and academic Dr. Wade Pfau, whose research gives us a simplified, systematic way to talk to clients and prospects about retirement income strategies to ensure they have LoMo. Focusing on Dr. Pfau's "Four L's" — the universal client goals and concerns — is key:
- Longevity: Having assets that can't be outlived, no matter the length of one's retirement.
- Lifestyle: The ability to spend money in retirement at a steady clip without having to make any drastic reductions due to factors like negative market performance.
- Liquidity: (Or what Pfau calls "true liquidity") having money for those unexpected shock expenses in retirement that's not earmarked for other needs.
- Legacy: Leaving money behind to loved ones.
Of course, there are challenges blocking the achievement of those goals, such as market risk and inflation risk.
