Sweeping demographical changes are upon us. Systems that support wealth accumulation remain as important as ever, but as the second wave of Baby Boomers approaches retirement age, firms that can’t make a similar leap to support wealth distribution risk becoming sidelined.
You might have spent your career building the best portfolio management solution and practices on the planet, but converting those portfolios into current income for your clients requires different tools and a different mindset.
And financial institutions that don’t have access to those tools stand to lose relationships they’ve nourished for decades – not to mention their share of the boomers’ painstakingly hoarded $41 trillion pool of capital. And it’s not like you can re-deploy all your resources to focus on wealth distribution— gaining new clients and retaining existing clients becomes ever more important in the face of retirement-driven asset attrition.
Going beyond the accumulation mindset
With a full 75% of the wealth management community describing itself a few years ago as “somewhat to very unprepared” to make that transition, you’re probably not alone.
If it was simply a matter of printing an occasional check or authorizing a transfer to one or two retired clients, the challenge here would be trivial.
Unfortunately, with 8,000 Baby Boomers retiring every day, many wealth managers will discover that their clients’ ongoing cash flow needs add up to a lot more than an occasional check, and the burden on firm resources gets heavier as transaction volumes increase.
Of course, you could always “outsource” the entire process by selling your clients’ market assets to buy annuities or interest-bearing instruments and letting those vendors write the checks, but few wealth managers are sanguine about the implications there.
Even the best annuity contract transfers the assets out of your management and so reduces your AUM accordingly, while exposing your clients to inflation and other risks. With well-constructed CD ladders locking in barely 2% a year right now, the inflation threat on that front is even higher – and again, the advisor loses either way.
For wealth managers who want to continue to add value in their clients’ golden years, the optimal strategy is generally to remain invested, sell down positions for the best long-term total return and be efficient when it’s time to make the outgoing transfers.
Getting better total returns over the retirement period is fantastic. Protecting the assets from inflationary pressure is essential. But if the payments fail to flow, your clients can’t use their nest eggs to replace their salaries.
Not an income solution: a payment solution
For an industry that has spent years fighting to create more reliable income streams for retired investors, surprisingly little work has been done figuring out how to get that income off your platform and into their checking accounts efficiently.
Specialized payments solutions, like what we have created at Innovest, handle all the challenges involved here. At Innovest, we continue to grow our payments capabilities because we see the increasing need for them on the horizon.
Using payments-specific solutions, distribution requests can be logged, tracked and automated, authorized distributions go out in a timely manner, and tax forms are sent to clients automatically. Innovest’s payment solution can be as simple as check, ACH, wire, and debit card printing and mailing and as complicated as completely outsourcing your payments function—including making remittances to taxing authorities. We can even put the tax form on the check stub to save on postage!
Automating the payments leaves your staff free to do what they were trained to do and what they are good at doing: working with your clients, accumulating assets, monitoring allocations and trades, and ensuring that the portfolio itself is well managed.
Payment solutions specialists with proven experience and deep subject matter expertise allow you and your firm to stay focused on your clients while we manage the mechanics and risk associated with making high volume disbursements.
Bill has been CEO of Innovest since its inception in 2000. Prior to joining Innovest, Bill was most recently in JP Morgan’s LabMorgan eFinance business unit as its Entrepreneur in Residence. Prior to joining LabMorgan, Bill was a Managing Director at Bankers Trust Company, acquired in 1999 by Deutsche Bank, and spent more than nine years in various positions including CEO of the bank’s wholly-owned subsidiary, The WM Company, PLC, based in Edinburgh, Scotland. Bill holds a Masters in Business Administration from the Wharton School of the University of Pennsylvania.