Dear Financial Advisors, Baby Boomers Are King

By Cyril Tuohy

Commentary

Dear financial advisors:

Turns out, you were onto something after all: Those aging baby boomers are the ones you want to stick close to.

Why? Because the baby boomers have the money. But, financial advisor, y’all already knew that, didn’t you?

Really, did you take seriously the avalanche of surveys purporting to show how to lasso Generation X clients? The warnings about ignoring the tsunami of 87 million millennials at your own peril? The thinly veiled snickers at your half-hearted attempts to grasp social media? The incessant drumbeat of how slow you were to change?

No, you took all that expertise with a grain of salt, as well you should have.

Perhaps you even wondered why you were being lectured to by young millennial consultants who’d never run a financial advisory business, never experienced a major loss, never had to “go it alone,” in the broadest sense of the term.

Did you want to waste your time with a millennial who couldn’t maintain eye contact for more than five seconds before looking down at his or her iPhone?

Of course, you were all too polite to dismiss those young 20-somethings to their face. You just went on with your daily affairs, as they went on with theirs. Here’s what you told the young whippersnappers: Gen X, Gen Y, Gen Z: Wait your turn like everyone else.

Advisors, well done. You weren’t swayed.

Those aging baby boomer are the ones you want to be glued to, like a defender glued so close to his marker that he can touch and jostle his or her opponent.

That’s right, boomers have the money, nearly all the money, and they intend to keep it for quite some time. Indeed, many of you financial advisors are boomers yourselves. Who better understands the needs of your peers?

Boomers have so much money, in fact, relative to the generations succeeding them that it’s not even worth thinking about anyone else – for the moment.

Change is coming, we all know that and you certainly don’t need overpriced young upstarts to tell you what you already know.

Wealth Concentrated Among Boomers

Eight years on from the Great Recession and asset values have rebounded.

In 2014, there were more than 142,000 consumer households with more than $25 million net worth, back above the prior peak of 122,000 in 2006. And that was two years ago. That 142,000 number has surely gone up since.

In 2014, consumer households had amassed $79 trillion in net worth, up 30 percent since 2008, so says Tiburon Strategic Advisors.

Much of that wealth has gone to the boomers. They already own homes, often more than one, and their assets aren’t just earning interest.

Assets are earning interest on interest on interest as they sit back and enjoy the fruits of compounding. Boomers stuck around, unmoved by market volatility during the financial crisis. Some had to scramble, but not for long.

Advisors, you all know this, but remember how much wealth in the U.S. is concentrated at the very top: the wealthiest 700,000 households in the country, those each with more than $5 million, control more than $7 trillion in investable assets.

At the very top you’ll find Bill Gates, Donald Trump, Barack Obama, Oprah Winfrey -- boomers all. Heck, for all I know, maybe you advisors even know some of them, help manage a fraction of their obscene wealth.

At the moment, baby boomers make up about 75 percent of the market and that’s the most important metric advisors need to remember — for now, according to Chip Roame, managing partner with Tiburon, based near San Francisco.

Those trillions of dollars in assets held by boomers aren’t quite “in motion” just yet — at least not in any significant quantity.

Boomers are living longer, and many of them are holding on to their wealth for longer as well, as you all know too well.

As the rich in America only get richer thanks to some absurd tax laws and the failure of government and the private sector to equitably redistribute wealth, boomers are the big beneficiaries and they are only getting richer.

That’s why many of you still work with those boomer clients, as you’ve been for many years, even if they drive you crazy more often than you’d like.

Changes are Coming, Slowly or Quickly?

Changes are going to take place over the next 20 years, but the boomers will dictate the pace of change.

Change could continue at a fairly slow and steady pace, like the time lapse images of a moving glacier, or it could cascade suddenly, like live video of a calving glacier. It could take much of that money to move over 15, 20 or even 25 years. No one knows.

Of course, it doesn’t hurt to cultivate new client blood and new clients will eventually take the place of boomers who exit the stage once and for all, but don’t ditch your core boomer clients yet. Only a fool would do that.

As the years go by, boomers will eventually liquidate large portions of the $59.4 trillion worth of assets held in retirement plans, personal property and small businesses. Eventually, all those trillions of dollars are going to move from a retirement plan to IRAs.

As boomers downsize, those trillions of dollars in personal assets -- like homes and property -- are going to move into investable assets.

When boomers sell their businesses – their 7-Elevens, gas stations and laundromats, 100 percent or close to it is going to move into the investable asset column.

Advisors, you know that the scariest thing about it all is? It’s that boomers have barely gotten started so it’s a good time to stay “invested” in the investable asset business for the next 20 or 25 years.

Yep, boomers are going to stick around. Advisors, why don’t you do the same.

All the Best,

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].