Pork Bellies and Yahoo

In my last blog, I gave you some tips on deciphering clients’ hidden needs—in order to make retirement readiness conversations more effective. Today, let’s dig into an additional area of opportunity: changing the way we discuss retirement plan lineups.

Let me start by taking you back to my days in the call center for The Principal®. For about two years, I probably talked with some 16,000 participants about a broad range of topics, but the most common question: “where do I put my money?”

One call from 1999 sticks out. A 32-year-old participant was looking for help allocating their savings. They weren’t entirely sure where they wanted to put their contributions, but they asked me to invest it all in pork bellies (bacon) and Yahoo. Their reasoning: those were investment options they had heard great things about, plus they had double-digit returns.

While I think bacon is delicious, I’m not sure that choice, along with a tech stock in 1999, was best suited to address the long-term savings needs of the young participant.

Focus on risk, not return

During your discussions with clients and prospects, introduce the idea of investment lineups that focus more on the risks associated with saving for retirement, rather than solely on returns (like the pork bellies and Yahoo caller).

Consider moving away from the Morningstar style checkbox and move towards outcomes-based investment lineups and the common risks investors face and these lineups can help address:

  1. Volatility – 53% of investors are concerned about economic uncertainty.1 In 1999, investing in technology stock seemed like a good idea, but in 2000 when the bubble burst, the risk trumped returns.
  2. Inflation – what will $150,000 be worth in 20 years? 36% of investors are convened about rising costs from inflation buying power of today’s dollar at retirement .2
  3. Emotional Risk – investors sometimes make decisions based on emotions fear, confusion, greed (like seeing double-digit returns) and potentially pull their money out of the market at the wrong time.
  4. Longevity – no one wants to outlive their retirement savings, 63% of investors don’t believe they’ll be financially prepared for a comfortable retirement.3

Change the rules of the battle…er conversation.

Change the conversation right away – don’t just talk about return, discuss addressing risks that impede saving for retirement and what the investment options are intended to “do”. Are your clients and prospects focused on moving participants to retirement with the best possible outcome, or are they just focusing on the “right now” return? Get your clients to think about more than just hitting the return marks in the Investment Policy Statement, but also how investment lineups and asset allocation funds are constructed.

Employers likely know their employees aren’t saving enough, and they also realize their employees need to invest more wisely. Starting the conversation around investment lineup construction naturally moves into the other piece of the story: savings rates.

The old saying is, “you can’t invest your way to retirement, but you can save your way to retirement, using outcomes based strategies”…okay maybe that’s not an old saying, but a new one (and if it isn’t trademarked – dibs!).

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In addition to blogging here, I also tweet regularly about advisor-focused practice management topics like sales and lead generation, marketing, service and management/operations. Follow me on Twitter at @Rschutty.

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1-3 Principal Financial Group Well-Being Index, Fourth Quarter 2013

Affiliation Disclosures

Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, 1-800-547-7754, Member SIPC and/or independent broker dealers. Securities sold by a Princor® Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

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