While advisors talk about catering to an aging market, too many assume that means simply getting the financial planning part of the equation right. But that’s not the case, says Barry LaValley, president of the Retirement Lifestyle Center Inc. in Vancouver.

A well-known expert on the issues associated with older investors, LaValley maintains advisors will increasingly need to serve as educators and advocates for people who see retirement as only a blur on the horizon.

“Clearly, the financial issues are crucial. But the advisor’s role is to act as a catalyst — to get clients thinking about what the future offers rather than only what it’s going to cost,” he says.

Rather than talk about money all the time, he suggests, advisors should focus more attention on the subtle issues that drive older people’s thinking. These include:

> the role that healthy aging will play, and how to anticipate and prepare for the health challenges that are likely to arise;

> the importance of family relationships and the development of a strong social network;

> the potential loss of self-esteem because retiree clients aren’t doing a “valuable” job any more;

> their approach to work in retirement, including volunteerism and part-time work;

> leisure time that encompasses social activities, solitary contemplation, physical exercise, intellectual engagement, spectator appreciation and creative pursuits.

“People facing retirement frequently suffer from a failure of imagination,” says Av Lieberman, president of the Retirement Education Centre Inc. in Waterloo, Ont., a company that conducts employer-sponsored retirement workshops to help clients identify both lifestyle goals and capital accumulation needs.

“Clients find themselves saving for a distant time horizon that they can’t really visualize,” he says. “They don’t spend sufficient time thinking about the other decisions they need to make.”

Lieberman has found that while money is a concern, the psychological transition from the work world to retirement is often the more stressful issue.

Many maturing clients are looking for ways to free up their time in order to enjoy their lives, Lieberman believes. “The key is to help them retire to something, not from something,” he says.

He credits Ken Dychtwald, a noted psychologist and author of books about aging, with identifying what he calls “cyclic retirement,” the growing preference of older people to live a life in retirement that includes periods of education and work, not simply the leisure activities that occupied the retirement years of previous generations. All of this hinges as much on the person’s state of mind as the state of his or her finances, he says.

Along with aging come physical and mental changes, Lieberman explains. In their 40s, people start to need reading glasses; in their 50s, they may battle obesity, the loss of a spouse or a sudden career change. Strength and stamina decline, along with hearing and reaction time — all factors that affect how older clients make their choices for the future.

In making decisions, older investors focus on feeling good about their choices, Lieberman says, while younger people try to learn as much as they can about each option.

Brain researchers suggest many older people don’t logically analyse decisions using the so-called “left side” of the brain. Instead, they become more “right brain” in the way they process information; they are swayed less by numbers and logic than they are by feelings and passions.

As a result, older clients will often bypass reason, logic and careful analysis and make decisions using what brain scientists call “somatic markers,” says Michael Sullivan, president of Illinois-based 50-Plus Communications Consulting, a training firm specializing in selling to older clients.

Somatic markers are pre-recorded behaviour guides that can be accessed instantly and played back to drive decision-making. They are principally based on heredity and life experience, Sullivan says.

“For example, think of your immediate reactions in the face of a potentially dangerous situation when you are driving an automobile,” he says. “You react instantaneously on the basis of somatic markers that were laid down by years of driving experience.”

Mature adults have more life experience than younger people, resulting in more somatic markers. The result is older people have a more intuitive take on whether something is in their interest. “They are more likely to use impressions to make decisions,” Sullivan says.

Somatic markers are the biological equivalent of “hot buttons.” No matter how accurate, if the logical presentation doesn’t touch the right emotions, the hot buttons stay in the “off” position and older clients cannot immediately see that recommendations are to their personal benefit, he says.

@page_break@“Context can be as simple as ‘connecting the dots’ for the senior client, relating everything that you say to what it means to them in terms of their life,” LaValley says.

Some advisors have used this type of retirement education as both a way to improve their clients’ knowledge and to find new avenues of business. Jeff Avery, a long-time partner with financial planning firm Colton Avery Deacon in Ottawa, has been organizing large-scale seminars in eastern Ontario for years. His goal was not to push products, such as annuities or insurance, but to help people make informed decisions.

“Up until a few years ago, this was our principal marketing strategy. And it was very successful,” Avery says. “But now we really don’t have the time to do seminars. Nor, frankly, do we have the need.”

With an aging clientele, Avery finds himself embroiled in clients’ lives in ways he didn’t fully anticipate, including later-life divorce, adult children who don’t see eye-to-eye with their parents’ decisions and clients’ need for assisted living and health-care arrangements.

“The vast majority of advisors focus more on the accumulation side,” says Avery. “There still aren’t a lot of us working on the disassembly side. But from the client’s perspective, it’s the whole point.”

Avery suggests financial planners maintain case studies of ways in which thorny retirement challenges were tackled in the past, and share these cases with older clients and, more important, their younger family members.

He also recommends advisors develop a more complete appreciation of the aging process.

One option he recommends is getting the elder planning counsellor designation (www.cieps.com). Started three years ago as a Canadian designation specializing in elder planning, the EPC program helps advisors provide specialized advice or counsel to aging clients. “It’s a good introduction to the issues and alternatives that are important to seniors,” he says.

A parallel choice is the certified senior advisor (www.canadacsa.com). Both designations cover topics such as understanding the aging process, nutrition, housing and preparing for the death of a spouse. Both are offered in live, three-day sessions and require the successful completion of a three-hour examination.

Absolutely every advisor needs this kind of training, maintains LaValley, who is a CSA faculty member. “If you’re labouring under a false or idealized view of what retirement is, your advice will lose a lot of its value.” IE





When older isn’t wiser



Do people become better investors as they age? Unfortunately not, suggests research from George Korniotis and Alok Kumar, two finance professors at the University of Notre Dame in Indiana.

Their study found the returns of older investors were about 2% less each year, on a risk-adjusted basis, than those of the average 30-year-old.

While older investors’ results lagged, the professors did find evidence that most investors still learn as they age. As a result, they tend to have more diversified portfolios, giving them some protection from sharp declines in the market.

But as people grow older, their cognitive abilities tend to diminish, making them less capable of picking market-beating stocks, the researchers concluded. The researchers say the result is that overall investment performance for self-directed investors declines steadily with age.

For their study, the professors obtained access to a database from a major discount brokerage firm containing the self-directed stock holdings and trades of more than 75,000 accounts from 1991 to 1996, identified only by age. They found some key differences.

Older investors were less likely to make “all or nothing” bets on a single stock or sector, for example. Their portfolios also tended to hold significantly more stocks than those of younger investors. But their individual results still lagged.

Korniotis and Kumar concluded that the older investors probably had more investment wisdom than those who were younger, but had difficulty applying it. “The investing principles learned over several years are likely to reside in investors’ long-term memory, which remains almost intact as people grow older,” they maintain. “However, the effective application of those principles requires efficient information processing, which relies on investors’ attention ability and the efficiency of their short-term memory.”

They also say aging investors:

> take fewer risks. The stocks they owned were less volatile and more likely to pay dividends.

> trade less frequently. Other studies have found this generally improves returns.

> sell losing stocks more quickly. They were more likely to take tax losses to offset their poorer choices.

The researchers concluded investors may be better off in funds or other managed products as they age. — Gordon Powers