The retirement transition

> Risk

The first issue to consider when clients make the transition to post-retirement is risk, says George Hartman, president and CEO of Market Logics Inc. in Toronto. With people generally living longer these days, risk profiles and even the concept of risk should be revisited. When a client is in that transitional phase, your job is to gauge what risk means to that client. Says Hartman: “The client’s attitude toward risk can change.”

Hartman suggests posing this question to clients: “What is more risky to you: the potential of losing money on an equity investment; or not earning a sufficient return on assets to maintain your standard of living because you moved to lower-risk investments?”

Both options contain risks, but your clients may not be aware of the risks inherent in the latter case, when investments are too safe. Your clients may need to be told that their savings, although substantial, aren’t quite enough to sustain their lifestyles.

Sheila Munch, a senior financial planner with Oshawa, Ont.-based Durham Financial Inc. , looks for that middle ground with her clients, locating a financial comfort zone for those worried about their returns and protecting their principal.

“We’ll do a what-if scenario,” Munch says, “showing how low a rate of return the client could earn and still be able to meet their goal.”

If Munch finds a client needs to earn only 2% over the long term, she says, that means the client will not have to worry if they don’t make 6% every year.

> Starting The Conversation

Your clients may find themselves in other, unenviable scenarios once they head into the deeper waters of post-retirement. Health risks, such as loss of mobility and chronic illness, as well as the likelihood of the death of a spouse, become greater as your clients get older. It is important to discuss these possibilities and their financial ramifications with your clients as they transition into retirement. (Presumably, you had prepared for some of these risks in the pre-retirement stage, with products such as long-term care insurance.) Now, you need to get your clients to look at the practical side of these risks. At what point will the home be downsized? Will the client move into a retirement home?

These conversations are not easy, but they are necessary. And they should be conducted when your clients are relatively young, healthy and lucid.

Hartman recommends starting the conversation this way: “Now that you are about to retire, here are some issues that could affect you that weren’t so important pre-retirement. Let’s talk about some of the new risks that you’d be facing and the kind of approaches we might take to mitigate those risks.”

Krista Kerr, president of Toronto-based Kerr Financial Corp. , says it’s important to have these conversations with clients so there are no surprises later on.

Kerr’s regular client meetings address the financial and health risks of post-retirement, including loss of mobility and the need for long-term care.

Bev Moir, senior wealth advisor with ScotiaMcLeod Inc. in Toronto, says these topics come up when she is outlining the three stages of retirement with her clients: the “active” stage, when clients may want to travel and pursue hobbies; then, the “ascending” stage, when they may prefer to stay home; and, third, the “questionable” stage, at which time clients may have to deal with the consequences of chronic illness and mental incapacity.

Moir recalls working with a retired couple, and the wife was showing early signs of dementia: “We did a couple of different scenarios, kind of ‘stress testing’ the financial plan to include the costs of institutional care for her for many years — because it can get expensive. Fortunately, [the husband] had been a good saver all his life and had a strong income, so he was fine.”

Munch and her business partner, Glenda Baker, do in-depth analyses on worst-case scenarios before they may happen. They will ask such questions as: “If your spouse were to die today, are you going to have enough money to live the lifestyle you’ve been living?” A checklist, which includes conditions such as widowhood, mental incapacity and physical immobility, can help break down those situations and risks.

Jane Olshewski, manager of financial life planning with Investors Group Inc. in Winnipeg, trains advisors in using the firm’s in-house Life Transitions Profile tool, which produces a checklist of risks for clients heading into post-retirement.

This list should be filled out by clients every couple of years, Olshewski says, to determine whether anything has changed. Again, the conversation won’t be easy, but, she believes, the earlier you start having regular discussions, the easier the transition will be.

Both spouses should be present when discussing these topics with your clients. While the husbands in elderly couples are usually more involved in financial decisions, wives should take part in these meetings as well. Moir’s male clients agree, she says: “I think they’re thinking along the same lines as I am — that their wives understand how important it is to have a relationship with [the advisor], so that when they’re gone, their wives will be looked after.”

> New Widows

The continuing trend of women outliving men is another reason to include both spouses in meetings. New widows, particularly those who haven’t been involved in the family financial affairs, may not feel comfortable dealing with you at first. “They may feel embarrassed to ask questions,” Kerr says, “because they feel they should know more than they do.” Kerr suggests telling a new widow not to make any decisions right away.

Similarly, Munch starts with a list that has nothing to do with the client’s investments, instead advising her client to take care of matters such as the deceased partner’s passport, bank account and driver’s licence.

“When someone becomes a widow,” Munch says, “the first thing we have to do is just be another person sitting on the same side of the table with them. Then, we sit down and listen to them about what they want their financial life to look like. First, take care of the immediate needs. Take care of their emotional needs as much as you can. Be compassionate and empathetic.”

> Finding A Connection

Empathy will be an important component of your communication with these clients in transition, and finding common ground will help toward that goal. Baker and Munch, who specialize in financial planning for women, feel a particular connection to the recently widowed; Baker has been a widow and Munch has been divorced. “We’re aware of how people feel in these situations,” Baker says, “so we know to stop and listen first.”@page_break@Moir draws on her background in nursing. She understands the health-care system and acknowledges that health can be a touchy subject with some elderly clients. “Everybody has this idea that health care is looked after,” Moir says. “But there are a lot of financial implications behind chronic illness and disabilities.”

You don’t have to be nurse — or a woman — to find a connection with your post-retirement clients. You may draw on your experience in dealing with your parents or other family members. What’s important is that you demonstrate that you care.

Kerr learned about empathy by following the example set by her father, Robert Kerr, a veteran financial advisor and founder of the firm in Montreal. Sometimes, a client will come in and just want to talk to Robert about family issues — such as what they can do to empower their children or protect a sick spouse — not to discuss how it relates to their financial plan. Says Krista Kerr: “[Robert is] a very empathetic listener.”

> Get The Conversation Started

When discussing the transition into retirement, let your client do most of the talking. And if a client is not sure how to start, ask a question that gets him or her thinking.

“If you’re dealing with seniors, their friends are going through [health and widowhood issues] all around them every day,” says Bev Evans, investment advisor in Mississauga, Ont., with Toronto-based Richardson GMP Ltd. Encourage your clients to talk about their friends’ experiences, and steer that scenario back to them by asking: “How would you handle that?”

Russell Schmidt, a coach with Strategic Coach Inc. in Toronto, suggests starting with a less direct, more hypothetical question. If the client insists he or she is unconcerned, ask: “If you did have any concerns, what would they be?”

Says Schmidt: “Almost always, when you ask that second question, the real story comes out.”

Take the time to understand your clients’ concerns before jumping in with advice. As Munch says: “[Advisors] want to bring out the toys and tools and charts and razzle-dazzle.” But your client is more likely to reject suggestions if they are proposed before you fully understand his or her situation and feelings.

Brent McKay, certified financial planner in Simcoe, Ont., with Waterloo, Ont.-based Sun Life Financial (Canada) Inc. , says constructive questions may lead to new ideas about developing the client’s post-retirement plan. For example, a conversation with a client may reveal that the client is passionate about a particular charitable cause. “It’s a good topic to raise with clients,” McKay says. “In a lot of ways, clients are relieved when advisors raise issues and open the door for a discussion.”

> Pursuit Of Happiness

In the early stage of retirement, your clients’ wants can take priority over their needs once their finances are secure. So, the conversation can turn toward advising clients on doing what makes them happy. “[If we have] an understanding of what it is they hold close to their hearts as far as their goals and aspirations are,” McKay says, “then we can be in the position of telling them what we recommend they do.”

Helping clients find happiness, Kerr says, is “more powerful than helping them get a few extra percentage points on their portfolios.”

Moir has a widowed female client who had sold her marital home; the client wanted to make sure her financial needs were looked after, but providing for her family was a priority. “We were able to give her an insured investment,” Moir says, “that gave her a guaranteed income stream and also left a legacy for her grandchildren. That was really important to her.”

Sometimes finding out what your clients want means changing financial plans around, even if it makes you a little uncomfortable to do so.

Munch speaks of one widowed client who appeared to be at risk of running out of money in her 80s should her portfolio underperform for a couple of years. “In her case,” Munch says, “if she wants to stay in her house, a reverse mortgage might be the option for her — although we’re not a fan of reverse mortgages.”

Once your clients have identified their wants, pursuing those wants is another issue. Some clients will need affirmation, especially if they’ve spent their lives working to accumulate and preserve their wealth.

Some elderly clients, Munch says, will want to pass money to their children “while their hands are warm.” If such a gift is financially viable, let your client know, Munch says: “Someone giving them permission confirms that it’s something that they want to do, and lets them know that they’ll be OK financially.”

Adds Evans: “We, as advisors, can enrich [clients] to have a more fulfilling experience rather than just saying, ‘You have enough money, so go ahead’.”

It’s important that your clients feel empowered as they head into post-retirement, so talk to them about how to dispense their wealth comfortably and enjoyably.

“Sometimes we have that discussion with the children present,” McKay says. “Whether the children like it or not, they need to understand what’s important to their parents.”

> Involve Adult Children

“Sometimes, people don’t want necessarily for the kids to know everything,” says Kerr, who holds the trust and estate practitioner designation. At family meetings, Kerr will use a flow chart to show the broad areas in which the client’s money is allocated and where the money will go when the client dies. “You can have those discussions,” says Kerr, “without going through every dollar.”

One of Moir’s clients, an older widow living in a retirement home, has encouraged her family to work with Moir during the planning process. “She’s been very proactive in downsizing her home,” Moir says, “[by moving into] a lower-cost but safer environment. She’s encouraged her older children to work with me in monitoring her finances and making sure we’re pulling it out at the right rate. That, to me, is an ideal situation.”

> Consider Other Tools

Moir invites her clients to learn more about estate and funeral planning, eldercare and critical illness. She holds seminars that show her clients what may affect them after retirement.

Evans, meanwhile, introduces her clients to her Senior Solutions Group, a network of specialists that includes a funeral director, an elder-care planner, an in-home care expert and a transition specialist who advises clients on housing.

“Most financial planners have referral networks that include accountants and lawyers,” Olshewski says. “Think beyond the traditional financial planning that you would provide.” IE