A Financial Professional’s Guide To Working With Older Clients
A FinancialProfessional’sGuide to WorkingWith Older ClientsAARP and the Financial Planning Association (FPA )
Table of Contentsii
Introduction2Disclosure by Financial Professionals:What the Client Wants to Knowabout You and Your Practice6ServicesMethods and ProcessesQualificationsExperienceFeesLegal ObligationsReferrals7101113141516Working with Older Clients18Social IssuesFamily IssuesGenerational IssuesPhysical ImpairmentsMental ImpairmentsWritten and Online Communications192022232628Resources321
Introduction2
With the pending retirement of 78 millionbaby boomers holding billions of dollarsin retirement accounts, and very unevenfinancial literacy and confidence in theirability to manage their money, the need forfinancial guidance is great.As the baby boomers reach retirement age, many of whom havenever had to seek financial advice or work directly with a financialprofessional may decide to do so. Many will look for help to planfor the future and manage their retirement assets. It is importantthat the financial services industry be prepared to meet thechanging demographics of investors.Financial professionals face several challenges in working withthese potential clients. One is that this “generation” is verydiverse. Currently it includes everyone from 40-somethingswho have already been saving in a 401(k) and feel they’re prettyknowledgeable about money management, to Social Securitybeneficiaries who are struggling to figure out how to maketheir retirement savings last. Potential clients also include the50-somethings who haven’t saved much but are trying to catch up,and retirees who are financially well-off but who must now focuson how to spend down their assets.Wherever they fit within this diverse group, some are going to behesitant to seek guidance. Some may be baffled or even intimidatedby the lexicon of professional credentials and the variation in the3
“ You should also disclosedetailed information aboutyour services, productsand costs, along with thepros and cons of each.”types of fees and costs that characterize the field. Still another factormay be lack of trust. Many have seen news reports about retirees whohave lost their savings in fraudulent “investment” schemes. Or they haveheard stories of individuals who suffered financially because they boughtfinancial products without understanding how they work or because ofinadequate or misleading information.Some financial professional organizations and consumer groups areurging consumers to comparison shop before making the decision toapproach or work with a financial professional. They’re saying that youshould be willing to be interviewed by a potential client and to respondfully to questions about your potential working relationship with them.You should also disclose detailed information about your services,products and costs, along with the pros and cons of each.More than ever, the ability of financial professionals to meet theneeds of clients will depend on their ability to reassure them thatthey have the necessary skills, experience and commitment to ethicalpractices to warrant their trust. One way to do this, starting from thefirst encounter, is to take the initiative to offer all of the information apotential client might need to make a decision. This means:nnn4C ommunicating in clear language, free of jargon, that laypersons canunderstand.P roviding written information to take away to study after themeeting.A nswering questions in person, without making the potential clientfeel he or she is being rushed to finish the interview.
nnC reating an office environment that respects the physical and mentalneeds of older people.B eing sensitive to the social, cultural and family dynamics that mayinfluence the client’s state of mind when approaching a financialprofessional.AARP and the Financial Planning Association (FPA ) have organizedthis document around two major themes that financial professionalsneed to take into account when working with older clients. The firstpart discusses the information that all financial professionals shouldbe prepared to offer clients and potential clients. The second partreviews the key social, family, generational, physical and mentalcharacteristics that may have an impact on this type of client’sapproach to financial issues. n5
Disclosure by Financial Professionals:What the Client Wants to Knowabout You and Your Practice6
Here are the key questions that potentialclients may have when they contact you.You may save yourself time by anticipatingthe questions and preparing plain-languageanswers to have on hand. Obviously, youshouldn’t be offering guidance unless you aretruly qualified to do so.ServicesThe retiree, especially one who has never worked with a financialprofessional before, may present special challenges:nnnnn hey are no longer receiving a paycheck, resulting in fewerToptions for maximizing retirement resources. They need to shift from wealth accumulation to drawingdown the earnings on assets or the assets themselves. They are not familiar with the types of services and productsoffered by various financial professionals. They have long-established spending and money managementhabits based on their pre-retirement lifestyle. They may have encountered a problem or crisis, such as loss of aspouse, and are uncertain how to cope with the financial impact.For clients with any of these characteristics, it is essential to clearlyexplain the services and products that you offer (e.g., what’s thedifference between investment planning and retirement planning?)and why certain ones may or may not be appropriate for herpersonal situation. If you offer products, you should explain the7
“ .you should be offeringflexible products that willnot result in undue costsor expenses if your clientexperiences a major life orfinancial change.”pros and cons of various products and, if qualified to do so, theirpotential tax impact for the client, even if this might cause the loss of asale. With all of the unpredictable changes that can occur in a person’slife, if you offer products, you should be offering flexible products thatwill not result in undue costs or expenses if your client experiences amajor life or financial change.Those not yet retired have different needs than those already inretirement. Keeping these differences in mind, both the interviewand written materials you provide should include descriptions ofyour services and products and specifically how they relate to olderinvestors. Goal setting, for example, may be focused on how to makethe existing resources last a lifetime, and/or provide an inheritancefor a spouse or children. Or if a client specifically asks to buy anannuity and it’s not appropriate for her circumstances, the insurancesalesperson must be ready to explain the pros and cons of thepurchase—for example, surrender fees—even if there’s a risk of losingthe sale. Financial Industry Regulatory Authority (FINRA) rules requirethat registered representatives learn about each investor’s financialgoals, risk tolerance, life stage, tax status, and investment horizon,among other things, and prohibit the recommendation of any productthat is not specifically suitable for the particular investor in question.8
The following can serve as a start for developing a list of services ofspecial relevance for those who have already retired. You may wantto adjust the list depending on what you are qualified to offer.nnnnnnnnn oal setting: Retirees need guidance on setting short- andGlong-term goals. Cash management: Creating and sticking to a budget may be themost important cash management issue a retiree faces. Investment planning: Retirees often depend on investmentincome for living expenses, and most cannot afford speculativeinvestments. Cash/Investment planning integration: Retirees may benefit froma three to five year cushion of cash for cash flow needs so that theyare not dependent on markets for their immediate expenses. Retirement planning: Even current retirees may need guidanceon lifestyle options and decisions, such as where to live, and theirpotential impact on their financial situation. Tax planning: When they start to receive Social Security, pensionand 401(k) or IRA income, retirees face a new set of tax rules theyneed to understand in order to manage their money wisely.I nsurance planning: Key issues for many retirees includewhether to buy long-term care insurance or life insurance, whento buy it, and how much; and assistance with a Medigap policy. Estate planning: Retirees may need help figuring out how tobalance their desire to leave an inheritance with the need to useexisting assets to live on. Specialties: Other areas in which retirees may need assistancefrom professionals include health care planning for themselvesor a spouse, and real estate transactions, such as whether toget a reverse mortgage or to make a commitment to a retirementcommunity or assisted living.9
Methods and ProcessesEvery financial professional has a personal work style. A potential clientwants to work with someone whose style meshes with his or her ownway of learning, level of financial confidence, communication style,and decision making.The financial professional-client relationship will vary dependingon your expertise and the types of services and products you offer.Regardless of whether you’re a securities broker, an investment adviser,a financial planner, an insurance producer, a CPA, or a tax lawyer,clients need to know whether you expect a long-term commitment orwhether the relationship will end with the sale of a particular product ordelivery of a specific service, such as completion of the year’s tax return.They also need to know the terms on which you’re available for futureconsultations. For example, if you’re an investment adviser, the potentialclient will want to know whether you’ll contact her if market conditionsimpact her portfolio; or whether the client will be expected to monitorthe investments and take the initiative to contact you with questions orchanges in priorities.10For comprehensive financial planning, a written plan is fundamentalto ensuring that the professional and the client have the samedocumentation of the financial data and financial decision options.The savvy potential client may thrive on receiving the multi-colorcharts and graphs that normally accompany a comprehensive financialplan. But someone who’s new to financial planning may find the samedocument intimidating or even inscrutable, and will also require adetailed conversation about the content and recommendations. You
need to clearly address how much assistance you offer in implementingthe plan, and the terms on which you’ll provide ongoing advice.Additional questions that you may need to answer include:nnn Do you meet with the client on a regular basis? How often? ill you take a client’s phone call at any time?W Do you prefer to communicate by email? For some clients, email maybe a desirable way of keeping in touch, but for those who are lesscomputer-literate, it may not work. Consider asking the client howshe prefers to communicate, and the best time to do so.QualificationsIt is important for clients to understand their financial professionals’qualifications. But because there are so many different categories ofprofessionals, and so many credentials being used in the marketplace, itcan be confusing for clients. It’s important for clients to know what kind ofservices their professional offers, how they are paid, and what regulatoryoversight they are subject to. For example, securities brokers are requiredto be licensed and registered with FINRA and the U.S. Securities andExchange Commission (SEC). CPAs must also have a license issued by astate Board of Accountancy. Clients should not work with professionalswho do not have the proper licenses and registrations for the servicesthey offer.Beyond licenses and registrations, some financial services providers alsoobtain voluntary certifications or designations based on completingcertain educational programs and/or years of experience. Some ofthese credentials denote legitimate expertise in a particular area, such11
as retirement planning. But others may be mere window-dressing. TheNorth American Securities Administrators Association (NASAA; 2007)reports that “individuals are using impressive-sounding but sometimeshighly misleading titles and professional designations,” and that manystates have taken enforcement action against individuals who had used asenior designation in a deceptive manner.For securities brokers, FINRA rules prohibit registered representativesfrom using any misleading professional designation, including those thatimply a level of expertise that the representative does not possess. NASAAhas proposed a similar prohibition on senior-related designations thatwould apply to all financial service providers. In addition, consumeroriented groups, like AARP and government agencies such as the SEC,have intensified efforts to inform all investors of the importance ofunderstanding and researching the credentials of financial professionals.As a result, consumers are increasingly likely to want to know whetheryour credentials are relevant to the services you’re offering. Consequently,you many want to tell potential clients about your qualifications, such as:nnnnn12 hat licenses are required for your profession, and which one(s) doWyou hold? Do you have education or certification in comprehensive financialplanning? What are the requirements for the certification you have? How much training have you received, and in which topics? Does your certification require you to take continuing educationcourses? What are the courses, and how often must you take them?
“ .because there are somany different categoriesof professionals, and somany credentials beingused in the marketplace,it can be confusing forclients.”There are a number of ways that financial professionals can provide keyinformation regarding their qualifications. Broker-dealers should showpotential clients that they have complied with the requirement to registerwith the SEC and with a self-regulatory organization such as FINRA.Accountants should disclose whether they are licensed CPAs, andinsurance professionals should disclose whether they are licensed in aparticular state and which lines they are authorized to sell. A senior realestate specialist needs to explain that the designation is based on 12hours of course work on how to serve clients who are 55 or older.CERTIFIED FINANCIAL PLANNER certificants should explain thebasic and continuing education requirements they’ve met and beprepared to respond to questions about the difference between this typeof certification and other designations that imply financial planningexpertise. Brokers, insurance sales people, accountants, lawyers and otherswho do not have formal financial planning credentials need to be upfrontabout which credentials they do and don’t have. Real estate professionalswho advise older homeowners should clarify whether their training andexpertise includes issues such as the financial and tax consequences theclient will experience if she sells or buys a particular property.ExperienceWhile it’s not a guarantee of greater competence or expertise, clients maylegitimately seek a financial professional who has maintained a practiceand a client roster over time. Retirees especially want to be reassuredthat they’re working with someone who focuses on the special issuesthat people in their circumstances face. Older investors may ask what13
“ .it is crucial for thepotential client tounderstand ahead oftime exactly how you willcalculate costs.”percentage of your clients are retirees, and the approximate income levelof those clients. Many retirees still receive a traditional, defined-benefitpension and may want to work with someone with that expertise.FeesWhen you go to the doctor, you get a bill listing the services you’vereceived and the cost of each one. When you need a lawyer, you canfind out ahead of time what the hourly rate will be for the time spenton your case. But when someone is looking for financial guidance, eachfinancial professional may have a different answer to questions abouttheir fees and commissions.For a retiree living on a fixed income, or on limited assets that mustcover expenses for the rest of her life, the cost of professional servicesis a very important issue. Some potential clients will be seeking adviceon a one-time basis. Others may want a long-term relationship. Somemay want a money manager. Others may want the opportunity to buyfinancial products to help them implement their financial plan.In each case, it is crucial for the potential client to understand aheadof time exactly how you will calculate costs and to receive a good-faithdisclosure of what they will be. Different compensation structuresmay make sense to different clients, depending on their needs andinvestment strategies and objectives. For example, a fee-basedapproach may make sense for a client who plans to engage in activetrading, while a trade-by-trade commission based approach may bemost cost effective for someone who does not plan to trade actively.14
Financial professionals should provide explicit information about thecosts of working with them, including:nnnnn ees—hourly, project rate, flat rate such as a percentage of assetsFunder management, or other arrangement. Commissions—how much, on which services or products, such astrading stocks and bonds, selling insurance or annuities, etc. Thisshould include whether you receive on-going income such as 12(b)1fees or trailing commissions from mutual fund sales. Combination of fees and commissions. Referral fees for sending clients to brokers, insurance agents, etc. Analyses or projections of product costs, benefits and features.Because of their high fees, one of the most sensitive financial productsis the variable annuity. Costs associated with variable annuities tend tobe high relative to mutual funds and other less complicated securitiesproducts. Furthermore, surrender charges may make them an unwiseor even unsuitable investment, particularly for older people with ashort time horizon.Legal ObligationsHelping clients understand the different legal standards, regulatoryrequirements and level of oversight for different types of financialservice providers can help them make more informed decisions aboutwhat kind of professional service best fits their needs. For example,investment advisers have a fiduciary duty imposed by federal law thatrequires them to act solely in their clients’ best interest. Advisers thatmanage more than 25 million in assets are subject to SEC oversight,while those with fewer assets under management are regulated bytheir respective states. By comparison, brokers have fiduciary dutiesto their clients based in state law, but are also subject to regulation byFINRA and the SEC, and are prohibited from recommending securitiesthat are not suitable for their clients. They are also required to conductthemselves in accordance with just and equitable principles of trade,and are subject to a range of other requirements, including a duty toseek best execution on behalf of their clients.You should also be prepared to respond to questions about whetheryou have been subject to disciplinary actions. AARP and otherconsumer groups encourage investors to check out easily accessible15
disciplinary records such as those provided by the SEC, state securitiesand insurance regulators, FINRA, and financial planning organizations.Most state boards of accountancy and state bar associations also keeprecords of disciplinary actions, such as revocation of a CPA license ordisbarment of attorneys.Anyone can go to websites such as the Financial Planning Association,the Securities and Exchange Commission, the National Associationof Insurance Commissioners, the American Inst
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