As boomers retire, advisers must work

The oldest of the baby boomers turn 65 — the traditional retirement age — this year. But so far, nothing about this generation has been very traditional.

In a change from the past few generations, many will have to finance their retirement solely from Social Security benefits and their own savings, which for many were hit hard by the 2008 stock market crash. Some of them will have a hard time making their money last. Their advisers will feel their pain as fee income drops along with account balances, and their clients look for ways to cut costs. Diminishing boomer portfolios also could be a drag on an advisory firm’s value when the principals themselves decide to retire.

Advisers “are worried about it,” said Elmer Rich, the principal of Rich and Co., a business development consultant that works with advisory firms.

They have plenty to worry about. Even before the market crash of 2008, boomers were behind in retirement savings, and a significant number are worried about running short of cash.

According to a March survey of 1,100 boomers by the Associated Press and website Life GoesStrong.com, 44% said they were not confident that they could afford to retire comfortably, and 57% said they lost money in their retirement plan, personal investments or real estate during the economic downturn.

Research backs up their worries. Last year, the Employee Benefit Research Institute estimated that older boomers whose pre-retirement income is in the top 25% face a somewhat less than 5% chance of running short, but for the next 25%, the odds of running out rise to 13%. The third quartile in income face a 23% chance of running out and 41% of the lowest-income quartile are likely to have problems.

Complicating the issue of not having enough money is the likelihood of much lower returns on retired-boomer portfolios.

Richard Hughes, president of advisory firm Merion Wealth Partners LLC, said that the market crash not only slammed client portfolios but also changed the way clients view investing, resulting in far-more-conservative investment objectives.

“UPSET THE APPLE CART’

“The financial crisis upset the apple cart in terms of how a retiree was going to live off accumulated wealth,” he said. “Clients are more comfortable not getting benchmark level returns when markets are going up. They want to preserve capital in all environments.”

One adviser called it inevitable that struggling boomers also will take a more conservative approach to the fees they pay for financial advice, especially as their portfolios are growing at a much slower rate than in the bull market years.

“One percent is a much bigger slice of a 6% return than it is of 16%,” said Michael Falk, an investment adviser in Riverwoods, Ill. “It will put pressure on what advisers are able to charge individuals. They may not search for an adviser when they are trying to make ends meet.”

Mr. Falk called it “in-evitable” that advisers will be pressured to lower fees on some accounts.

Advisers also will take a hit when they sell their businesses if they have a concentration of boomer clients, said an investment banker.

“If they are not bringing in new assets, it will dramatically affect the value they will receive if they go to market,” said Paul Lally, president of Gladstone Associates LLC, which provides succession and transition planning.

“When you look at an aging client base,” he said, “it is like buying aging machinery — it has a very defined life.”

E-mail Lavonne Kuykendall at [email protected].