Shifting Horizons

Not quite halfway through the Baby Boomer march to retirement, conditions are ripe for continued investment success. Many will need it.


By Dennis Boone



Circle this date on your calendar: Dec. 31, 2031.

What’s special about that particular New Year’s Eve? It’s the date on which the very last members of the Baby Boom generation, born just before the clock ran out on 1964, will reach age 67 and—what for them will be full retirement age.

Many, to be sure, will hang on in their workplaces or with the companies they’ve built, for some years thereafter. But there’s little question that the torch—and the tag of Oldest Working Generation—will be passed along to what we know as Generation X.

As that unfolds, some remarkable changes will be occurring within the nation’s wealth-management sector, both for clients and executives running the firms that manager their money. Here are just a few:

Boomers are greying, but they aren’t in full Geezer Mode yet; as a cohort, they are the healthiest and most active “older” generation in the nation’s history.

They also stand to inherit a combined (and very roughly estimated) $8 trillion from the Silent Generation just ahead of them, and trillions more from Greatest Generation survivors who are now older than 90.

As a group, even though two out of three Boomers are estimated to have no retirement savings—ZERO—their aggregate wealth has been estimated at up to $30 trillion. Yes, with  a “T.” (Take that figure with a large grain of salt, because other estimates are in the $20 trillion range, and a 50 percent rounding error is not inconsequential at that level).

But longer life spans, rising health-care costs and a lifelong penchant for coddling their impulse-buying demands at the expense of long-term savings—it all means that whether it’s $20 trillion or $30T, a great deal of it will be spent before they’re in the ground. Much to the chagrin of potential inheritors, perhaps.

Those dynamics shape the workdays of the nation’s wealth managers, but that sector, like their clientele, is being wracked by regulatory and demographic change from within. For all those reasons, and for the vast sums involved, investors may have more on the line at this point than ever before.

Changing Conditions

Over the past year, two developments stand out for their impact on investor strategies, in particular those of Baby Boomers, wealth-management executives say.

“I definitely think federal tax reform created a lot of opportunities in equities, and opportunities for companies to prosper and reinvest and gain clarity on strategy going forward—it helped earnings,” says Nick Blasi, CEO at Frontier Wealth Management. “It helped heat up the economy a bit, forcing  the Fed to raise interest rates. That’s been at an incremental level, but the impact on Boomers has been interesting.”

For the first time in more than a decade, wealth managers say, rates have risen sufficiently to attract capital back into instruments with less risk attached. Seven times since late 2015, the Fed has nudged rates up a quarter-point. And while a current 2 percent rate won’t cushion many nest eggs, it has the psychological feel of something substantive. “There are opportunities in money markets to pick up additional yields,” Blasi said, “so that’s been good for Boomers.”

At Commerce Trust Co., west region president and CEO Scott Boswell notes that “there is more game left to be played than has already been played” with Boomer retirements, and less than half have crossed beyond official retirement age. For them, the current investment landscape carries huge significance.

“They tend to be in their highest-earning years—folks with families, and many, if they’re not already empty-nesters, are about to be,” Boswell said. “Or if they are business owners, the growth of the business represents accumulation of a lot of their wealth. We still do see wealth being created by the Boomer group, and that wealth transfer is in place and continues through appropriate estate planning.”

With accumulated wealth on the table, and with the shortest time horizons to retirement, palpable tensions are rising within that investor class.

“There’s just more fear from Boomers than is generally normal,” says Peter Mallouk, president and chief investment officer at Creative Planning. “When we see a new person interested in the firm, they are concerned about the availability of Social Security, especially 10 to 30 years from now.” That uncertainty persists somewhat incongruously, he said. “They are sitting on more wealth than any generation ever had before, they are saving more, they have more equity in their homes. “That combination of wealth and uncertainty is causing them to get very serious about making decisions to position themselves to not be at the mercy of external event. There is certainly more thoughtfulness going into financial decisions than 10 years ago.”

Market volatility this year has done little to erase feelings of uncertainty.

“Initially and throughout early 2018, we saw clients have a fervor toward higher-risk investment concentrations,” said Brandon Fancher, first vice president and investment officer for Wells Fargo Advisors. After the big run-up in equities that came in the way of the 2016 presidential election, and the Dow Jones Industrial Average is standing more than 40 percent above its November 2016 low, despite a retreat this past spring. “At this point, many clients appear to be pulling back a little on the reins of risk assets and redeploying in areas with less risk where they think opportunity may exist,” Fancher said.

KC Mathews, chief investment officer for UMB Bank, doesn’t sense major changes in investor strategies, but other factors are at work on the playing field.

“I don’t think you’ve seen a shift in investment strategy,” Mathews said. “Clearly, tax reform created a fiscal stimulus that was beneficial for corporate America. We’ve seen in certain data points the increase in capital expenditures, and that was something that had been missing. We knew since the Great Recession that companies were re-purchasing stock as an easy way to bolster their earnings-per-share numbers without the organic growth. But the capex, that’s what drives productivity gains,” potentially setting the stage for continued economic expansion.

Should any of that be prompting investors to change strategies at this point? “I would hope not,” Mathews said. “This stimulus is temporary. For someone to say ‘I’m a CD investor with a low-risk budget,’ to change strategy now and go into the market, I think, would be imprudent. We have not advised clients to make changes, based on fiscal stimulus as far as asset allocation.”

A Changing Sector

Perhaps the most significant decision facing investors today has nothing to do with the Dow’s trend lines, interest rates, home values or future health-care costs. Rather, it might be the choice of investment firms to handle their portfolios, for it is indeed a financial-services sector in change. Consider:

  As regulatory costs have soared following the onset of the 2008 financial crisis, the number of broker-dealers in the country has dropped by 12 percent, and industry insiders expect more, smaller firms will be priced out of the market, unable to compete with firms that can command economies of scale.

  The average age of an adviser now exceeds 50, and more than 75 percent are older than 40. This, as Millennial investors—who are demanding advisory services from people in their age group—are poised to outnumber all others,

  An estimated 16,000 advisers and brokers are expected to retire this year, and a projected 237,000 will be needed within a decade. Yet only about 3,000 financial planners achieve certification each year, and by 2020, it’s likely that 64,000 financial planner positions will have opened up.

  By some estimates, more than 60 percent of the nation’s advisers over the age of 60 have yet to implement a succession plan at their firms, and for those who have, retention rates have been only about half the 90 percent target that the industry considers necessary to ensure stability in client service.

When it comes to new talent in the advisory ranks, “we’re finding, but it’s a tough market,” said Blasi. “We’re seeing really smart people eager to learn.”

Mallouk said the quest for talent has been the biggest challenge for his fast-growing firm, which just moved into a new, expanded headquarters. “We really have a tremendous demand for certified financial planners, estate attorneys and CPAs,” he said. “It’s a tight market, but we’re fortunate enough to hire almost every day this year, despite that.”

Being a destination firm helps with retention, he said, as does a compensation and benefit package that has made Creative Planning a multi-year winner of Ingram’s Best Companies to Work For. But as with any successful firm, he said, the key is matching clients needs to the right advisers and strategies, whether the investor or the adviser is a Boomer, GenXer or Millennial.

Staying the Course

When assessing the challenges facing investors, and the way they should approach them, many wealth managers are cut from the same cloth as advisers. In a nutshell, they say it all comes down to having a goal, having a strategy to get there, and not wavering in the face of setbacks—or spiking the football during a market run-up with extravagant spending.

“Review your assets, know what you own, have an expectation of how that has historically acted in different economic cycles and understand what you are paying to own it or change it,” Fancher said. “We generally have corrections in the stock market of 10-20 percent almost yearly, and many of those corrections were just that—a correction. Occasionally, that has turned into something worse,
a bear market where losses have averaged 20-40 percent in the U.S. stock market.”

Given that, advisers say, and that we haven’t had a true bear market in nearly a decade, investors need to position themselves to endure economic shocks that could threaten decades of prudent savings.

“Do not try to time when to get in and out of investments, especially during times of volatility, as that has been proven to be futile for many,” Fancher said. “Rather, incorporate strategies to help build a diversified balanced portfolio to better enable you to withstand market corrections. Keep in mind that while it may help, diversification does not guarantee profit or protect against loss in declining markets.”

Just because there is more information at investors’ fingertips doesn’t mean every bit of it is helpful, advisers say.

“There is more noise than ever, more hysteria than ever,” said Mallouk. “I’ve seen tremendous mistakes that you can blame on cable news more than investment sense.” The elections of Barack Obama and Donald Trump both elicited hair-on-fire predictions of market plunges, he noted, but those who tried to time the markets missed some huge growth opportunities.

“The economy, in reality, is not as connected to any president, Democrat or Republican, as people expect. McDonald’s will still sell cheeseburgers, Nike will still sell shoes and Apple will still sell phones,” he said. “Where the tax rate is, where interest rates are, that may have some impact, but the political, not as much. They call it an economic cycle for a reason.”