Queensland financial planner Dr Malcolm Johnson is believed to be the first person in the world to apply a psychology perception model to financial planning.
His subjects, perhaps fittingly, were that most unconventional of generations — the baby boomers.
Johnson’s aim was to understand why baby boomers approach financial decisions differently.
His PhD research, which also shows how gender and proximity to retirement affect retirement planning decisions, confirms that the majority of boomers are in denial about the ageing process. In fact, his study, completed last year, found that the cognitive age of many baby boomers — the age they feel and think they are — is 10 years below their actual age.
“It is quite common for a 50-year-old to think, act and feel like a 40-year-old,” Johnson’s report says.
His research also shows that it will often take a marriage breakdown, a brush with death or receiving a large inheritance to prompt boomers to see a planner.
The baby boomers included in Johnson’s thesis had an average income of $65,000, but only 19 per cent had a financial plan. According to Johnson, financial planners are going to have to get inside baby boomers’ heads if they want to up that percentage.
How?
For one thing baby boomers want more control over the advice giving process, regardless of how financially literate they are.
“All of them are saying ‘don’t sell us products’. The baby boomers want to be engaged in the discussion. They’re conscious of their own incompetence but they don’t want to be embarrassed by it. And that requires good sensitivity on the part of advisers,” Johnson says.
Johnson’s is not the only study to examine baby boomers and their attitudes to money as they get older.
Numerous reports have shown that baby boomers not only expect to live longer than their parents but expect a far better quality of life.
“They’ve lived through a different set of times,” says Deutsche Asset Management (DeAM) managing director Shaun Mays.
“Their parents have been through a war period and the great depression when the economic side of the equation was quite tough, but I think that the boomers have gone through a sort of golden age of economic prosperity.”
And chances are they will expect that golden age to continue to the death.
But this doesn’t mean they are flocking to their nearest financial planning practice to make sure it does. Even those that are doing something about their retirement tend to avoid financial planners altogether and put most of their money into the residential property market.
This has only reinforced the notion among industry commentators the baby boomers are choosing to ignore the fact they are ageing.
Paul Resnik of The Paul Resnik Consulting Group says: “It’s really a case of denial. The baby boomers deny that they’re getting old. They deny that they’re going to have financial difficulties ahead.”
Today there are about five million baby boomers in Australia — about a quarter of the entire population. Those five million people own close to three quarters of the nation’s financial assets.
The challenge for financial planners, according to Resnik, will be to work out how to convince the boomers that they need advice.
“Will this generation of people be happy with the traditional planning style? I would argue that they probably won’t be because they tend to be autonomous.”
“They are unlikely to simply accept the advice provided by financial planners, no questions asked, without thoroughly investigating issues further.”
MGF Consulting Group managing director Max Franchitto also believes baby boomers as a generation are independent thinkers.
“They cannot be hoodwinked by clever marketing and advertising and that is why they are critical of recent advertising and marketing strategies undertaken by some product providers.
“Their message is clearly ‘cut the crap and give me the facts’.”
This cynicism among baby boomers as well as their desire for more involvement in the planning process is why many industry experts are suggesting that planners develop a more collaborative, holistic model of advice.
Australian Investor Education Association head and ex-planner Michael Westbury says, “Baby boomers have traditionally challenged the status quo, and have been particularly tough on people in positions of authority”.
“Witness the demise of respect for the government, the church and other so-called pillars of society, such as lawyers, doctors and teachers.”
And for the other group of boomers — the ones who do have a solid understanding of financial planning — Westbury says the huge growth in self-managed super funds (SMSFs) reflects the fact that baby boomers feel they can do a better job than the professionals when it comes to managing their superannuation.
Westbury says to attract baby boomer clients, planners are going to have to take a less didactic approach.
This more subtle method will have to involve education, according to Westbury, who believes the availability of well structured education programs offered as an alternative to immediately meeting with a planner, slows down the sales pace to a more ‘agreeable and leisurely rate’.
That’s why he’s put his money where his mouth is and set up his own company that offers educational programs based on adult learning theories to clients.
But can what appears to amount to a type of advising foreplay, be offered by the adviser? Not surprisingly given his new venture, Westbury doesn’t think many advisers will be able to take on that job themselves.
“Generally most planners aren’t educators. Many just stand up there and talk about what they know. There’s no process of feedback or any interaction. Adults, particularly baby boomer adults, don’t like to learn like that. They like to interact.”
Jennie Murray is another ex-financial planner who has set up her own client education consultancy.
She concurs that to reel in the boomers, planners will have to offer a more lifestyle-based advice model.
For example, because of increased life expectancy, many baby boomers might want to work for longer, or maybe change to a less stressful job or even set up their own business.
This is why in a joint seminar with RetireInvest she organised a career officer to come and look at clients’ career development.
As well as employment issues, she says baby boomers will have to deal with a whole raft of new lifestyle changes that will have to be factored into the planning process, particularly those related to residential property investments.
“They’re not content to just sit and tend a veggie patch and play a round of golf. Now they will commute between beach house and town house, or go for an overseas trip.”
Understanding the boomers’ desire for residential property is another crucial issue for financial planners. This presents a problem for most advisers who generally don’t have much to do with real estate. However, the fact that so many boomers have invested in this asset class means it is just too big for planners to ignore.
A preference for residential property isn’t necessarily a bad thing for advisers, according to DeAM’s Shaun Mays.
“There’s a huge opportunity there, in my view, to migrate that lazy capital in the residential property market into financial assets,” Mays says, adding that because the boomers have experienced such rosy economic times, they might be afraid of inflation.
“Inflation for a retiree is going to be different from inflation for you and I.”
“If you’ve been a retiree you’ve had massive inflation because electricity, water and all the things you use have shot up greater than the consumer price index (CPI). So baby boomers are going to be looking at how to immunise themselves against that inflation risk.”
This is why Mays thinks planners should start to recommend that baby boomers move their money into high yielding, inflation-linked assets like property syndicates, bank stocks and infrastructure stocks.
These assets, as well as imputation funds, are what the majority of DIY investors are selecting, according to Mays.
“People say DIY super is a terrible thing to happen. I think it’s an absolutely logical thing to happen because we haven’t managed the money in a way [to meet] requirements of these people.
“The growth of DIY super and where DIYers are putting their money is giving us a lead indicator of what we’re doing wrong.”
