Joseph F. Coughlin is the founder and director of the Massachusetts Institute of Technology AgeLab, a multidisciplinary research program created to understand the behavior of the 45 and over population. It considers the role of technology and the opportunity for innovations to improve the quality of life of older adults and their families.
You say advisors have to think more broadly than just retirement to help clients plan for the future. Can you explain?
JC: What people want to hear about is how to manage their longevity, not just retirement. That includes three things that most of us know we're going to have to address, but the banking and investment community is loath to discuss: the cost of our health, caregiving and successfully aging in place-that is, in our own home. All of those are major financial and service needs, but also big business opportunities for the banking and investment community.
JC: My encompassing vision is seeing banks as a ubiquitous, trusted source of longevity solutions. Money is part of it, information is part of it, but trust is also part of it. What banks are well suited to do-and have done largely because they're on your street corner and part of your daily life-is to have conversations with clients and engage them with the next generation of life's activities. Beginning in your forties, looking at caregiving and support, and the independence of your parents, to transitioning to purposeful income and planning for the things we'll need when we age, like home modification. Because it has greater access to knowledge on the ground, the bank can connect us with trusted services. For example, the bank can connect you with a trusted contractor to do home modification or trusted services, like home repair or food delivery. These are inherently financial transactions. This is an important way for banks and bank investment advisors to provide true value to the client. The future of advice in the bank will be to link money with purpose, rather than ways of saving, spending or moving money.
How about the individual advisor. How will he be able to help the client plan for, say, healthcare?
JC: When we speak of health, the bank advisor has to be able to inform the client how much these expenses, which may be out of pocket, are going to be in older age. That requires not just averages, but some knowledge provided by the client. It is also based on research the bank has done to understand what likely costs are of certain common conditions, such as diabetes and cardiovascular disease. As a footnote, those both have significant costs beyond what public and private insurance will pay. The cost of diabetes for those who manage it well, is $6,000 a year out of pocket.
What's ironic is that health is the third largest cost households will pay in retirement-the first two are housing and transportation. The irony is this is what people want to hear about, but advisors don't want to talk about because they have never been prepared as it requires a personalized discussion rather than an average discussion about everyone regarding income and accumulation.
So how does an advisor who was trained to identify solutions in the form of products adjust?
JC: They have to offer personalized solutions. They're going to have conversations like: "I understand your wife was just diagnosed with type-3 diabetes." Rather than getting into the nuts and bolts of financial instruments, they have to ask questions like what the treatment will be like and then suggest products. It is a discussion people who majored in business or economics are not comfortable with in their own private lives, let alone in public. They're more comfortable driving a spreadsheet or selling a product than saying, "I want to offer you a personalized solution." The only time you see those discussions is in a high-net-worth setting where families had two or three advisors that includes accountants, lawyers, financial advisors and planners. Because they had just a few clients, they knew their job was not just to know products, their job was to know that family. Now that's being demanded at lower levels.
How did retirement planning change from planning for a target number, to planning for various aspects of life?
JC: What's driving this is the fact that the baby boom generation is the first generation in which women are more educated than previous generations, as well as more educated than the men. Women ask more questions and they drive the discussion to be far more comprehensive, and ask questions like: "What is the impact going to be not just on my income stream, but the loved ones around me, and eventually, what's the impact going to be on me if I find myself alone?" Men generally just look for: "What is the number I need to retire?"
Now with the mass-affluent market, and even the middle market having these demands and more disposable income, they're demanding that similar services be provided for the rest of us [which used to be the province of the high-net-worth]. So it's moved from retirement planning to longevity management.