Five Questions With Joseph F. Coughlin
Joseph F. Coughlin, director of the MIT AgeLab, leads a research program aimed at understanding the behavior of the 45-and-older population. Its analysis includes the role of technology and the opportunity for innovations to improve the quality of life of older adults and their families. He spoke to writer Elizabeth Wine about how advisors fall short in dealing with this demographic.
1. You say that advisors must change the way they deal with clients, especially baby boomers. Why?
Consumers are getting so much smarter and their challenges are so much more complex-the costs of chronic disease, care giving for parents or possibly a spouse-that they need advisors who understand what life stages mean to what they're going to be spending money on now. Advisors will have to face the challenge of not just being fluent in product, but being much more sophisticated about the client's current problems instead of just selecting products to help 20 years from today.
2. Do clients not need help both today and 20 years from now?
The consumer no longer envisions retirement as walks on the beach or fairway. The story of retirement that we've been selling is now a punch line rather than a promise. Clients are being more realistic now: "What is the cost going to be for me to live well, to be able to extend the way I live today? Maybe I won't be walking on the beach for the next 20 years, but if you can plan a way for me to walk in the sun for a week or two a year, I'll take that."
3. If retirement as the endless summer vacation is out, what's in?
Baby boomers and others are looking for advice. The future of advice is more responsive, far more relevant and much more realistic. Given the economic downturn, the loss of trust in institutions and expertise, and the complexity of consumer's lives, the consumer thinks today: "For you to have a relationship with me you have to make yourself and your product relevant to what I'm doing now. I have a difficult time managing the next 30 minutes, let alone selecting a product for the next 30 years.
4. In light of that, how has the advisor/ client relationship evolved?
Consumers will demand that advisors be responsive not to what their retirement might be, but responsive to what their longevity will be. Advisors must be able to understand and navigate my longevity. What we currently have are advisors who are exceedingly skilled at talking about the benefit of a particular product or a particular way of planning. But what baby boomers and the next generation are looking for is a navigator of longevity. We need to plan for events, not some ambiguous number. Twenty or 30 years ago the idea was: "What's the number I need to retire?" That notion is outdated. People are much more likely to plan or save for a purpose, like staying in their home or paying for a grandchild's college, rather than an ambiguous number. That requires far greater sophistication in advisors-not just to be knowledgeable about products, but also longevity.
5. What will these new retirement products look like?
Providers are going to have to develop purposeful products that anticipate the costs associated with these lifestyle changes. They also must be able to provide the information to advisors-who have to be able to offer not just advice but consultation to their clients-about what the future is likely to hold. Manufacturers need to re-frame products to provide not just an income stream for some time in the future, but income for specific needs. This will be consumer-driven innovation. Baby boomers are not just more educated and expect more, but they expect better because they have such high opinions of themselves and they will force manufacturers and advisors to cater to their needs.