Advisors better start rocking if they want to retain retiring baby boomers’ business

By Alain Thériault | November 19 2005 02:12PM

Just as the rock’n’roll pioneers of yore reshaped the cultural values of an entire generation, hundreds of thousands of baby boomers are redefining the financial needs of retirees! They’ve had enough of learning how to save…now they want to know the best way to spend what they’ve saved. Are financial advisors ready to handle this windfall? Financial planning guru and former rock music DJ, Daryl Diamond, has his doubts!

Music legend Ronnie Hawkins once summed up his vision of retirement planning: “I’ve spent 90% of my money on booze and (women). The other 10% I’ve squandered.”

Mr. Diamond, president of Winnipeg-based Diamond Retirement Planning, is convinced this simplistic stance is not shared by “hundreds of thousands of baby boomers in Canada that will turn 60 this year.” Instead, he thinks that this populous segment will want to be advised on the best way to intelligently spend their retirement savings…and won’t hesitate to drop any advisor that is ill-equipped to help them.

At a presentation for advisors organized by Standard Life in Montreal this fall, Mr. Diamond said, “No one is telling retirees how to spend! To get in on the coming boom, the financial services industry must completely change its mentality,” he insisted.

This frenzy should span almost two decades. Statistics Canada, which defines these post-war offspring as people born between 1945 and 1964, estimates that at 9.5 million, baby boomers account for nearly 30% of the Canadian population. Back in 1997, a Gallup survey revealed that the baby boomers as a whole would inherit $8 trillion in 20 years. More than a third of them planned to earmark this inheritance for their retirement or other investments.

Interviewed by The Insurance Journal when he swung through Montreal on a cross-Canada tour, Mr. Diamond cautioned that “this wave is the next giant market for the financial services industry, but it’s also a window that will not remain open indefinitely.”

He chastised the financial services consulting industry for blindly focussing on accumulation when they broach retirement planning. Today, the scale is fast tipping toward income-centred solutions, he argued, adding that this approach calls for specialized taxation and planning services that are still out of the grasp of most financial advisors in Canada.

“I don’t think that the imminence of this wave is news, but, people just sweep it under the rug all too often.” In the same breath, he urged financial advisors and their suppliers to gear up or risk ceding their clients’ assets to the banks, some of which are already actively campaigning to recruit this type of client. “During the mediocre years on the stock markets, from 2001 to 2003, financial advisors lost a large part of their clients’ assets to the banks. The same thing could happen today if they don’t get on board,” Mr. Diamond said.

Music and service

If advisors aren’t ready for this shift, neither are baby boomers clamouring to make the transition from RRSPs to income.

All the same, the stakes of not being well prepared are huge, more than any previous generation this clientele wants “the highest income possible, and wants it now!”

Mr. Diamond uses the rock’n’roll culture to rev up the imagination of his clients, a method he shared with his audience at the Montreal conference. “All the baby boomers know rock music. They look back at the stages of their life and recall what they were listening to at that time.”

He used Billy Haley and the Comets to illustrate the break between methods pre-2005 and what the future holds. “Rock around the clock, launched on July 9, 1955, marks the rupture between what happened in music before and from then on,” Mr. Diamond explained.

To highlight one of the risks threatening baby boomers’ income, taxation, he treated the audience to the Beatles hit Taxman. To a limbo beat, Mr. Diamond invited advisors to recommend to their clients “that they keep net income as low as it can go.”

He set what he calls the “limbo bar” at the net income higher than the first federal taxation bracket, or $35,595. He then recommends that clients maintain a threshold that will let them obtain the old age credit, while keeping income below the old age security benefits clawback level.

Other ways to stay under the bar: obtain a loan guaranteed by the redemption value of life insurance, generate capital gains income, hold tax-free capital, receive a prescribed pension/annuity, adopt donation strategies and split income.

To a backdrop of The Eagles’ Take it to the Limit, Mr. Diamond recommended that to save even more taxes, retirees should form the largest possible pool of non-registered retirement instruments. And to emphasize how much baby boomers abhor locked-in retirement accounts, he cranked up I’m Free by The Who.

Mr. Diamond noted that it is also very important that retirees withdraw in the first years their investments that generate the best returns and reinvest the gains in investments with negative returns. “It’s called the hold and buy strategy.” A strategy that gives negative return investments a chance to perform better over the years.

Provide the best solutions to your clients and they will remain loyal. Seize the opportunity to snatch assets from the banks, he urged. “To grow your business, you will need to get your hands on capital held by other advisors and institutions,” Mr. Diamond explained.

Diamond Retirement Planning specializes in financial planning tailored to clients that want to retire in the next five years. The company aims to ease their clients’ transition from worker to retiree. Mr. Diamond’s strategies include increasing the flexibility of assets or repositioning them to give clients more tax advantages at withdrawal.

Not your parents’ retirement plan! (see page 6)

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