Advisors Face A ‘Pretty Optimistic’ Future Thanks To Baby Boomers

By John Hilton

Chip Roame is "pretty optimistic" about the near future of the financial services industry and he points to two words as the reason why: baby boomers.

It's really just simple math, said Roame, managing partner of Tiburon Strategic Advisors, a California consulting firm. Roame hosted a research call Thursday on consumer wealth, baby boomers and recovery from the 2008-09 economic recession.

Baby boomers number 72 million people, or 22% of the population. Many of them struggled through the transition from defined-benefit pensions to defined-contribution 401(k)s. A lot of boomers just didn't save enough money for retirement.

“If you didn’t save and you’re going to live a long time, you therefore, have a problem," Roame said. "And I think people agree that’s where baby boomers are today."

But one thing boomers do have are homes, and many own businesses. Overall, consumers own about $15 trillion in home equity and another $13 trillion in small-business valuation, Tiburon found. Much of that is owned by baby boomers, or near boomers.

And it will form the basis for their retirement plans, Roame said.

“I think they will work later into retirement," he said. "I think we’ll have a lot of Uber drivers. They’ll roll over their 401(k)s, they’ll sell their small businesses and they’ll downsize their houses, and that’s how they’ll retire, along with working more in retirement.”

As it stands, consumers possess $49.4 trillion worth of "investable assets," Tiburon found.

"The most profound impact in the financial services industry for the next 20 years will be baby boomers liquidating some of their non-financial assets and moving some of the money into the investable assets pot that almost all of you go after," Roame explained. "That $49 trillion pot will get a lot bigger because it will probably grow but then also the money will be flowing into it.

"So I’d be pretty optimistic in the financial services industry, specifically in the asset management industry for the next 20 years or so as the baby boomers retire."

Home Equity Rebounding

In a positive data set, Tiburon noted the strong rebound in home equity from the 2008-09 recession. At that point, consumers owned about 40% of their homes on average. Today, that $15 trillion worth of home equity translates to about 60% ownership, Roame said.

“The key reason that people feel wealthier today than they did 10 years ago is because their share of that home value is going up," he explained. "Every dollar that it appreciates goes into their pocket, not in the bank’s pocket. The mortgage amount doesn’t go up, therefore, you get the full value of that increase.”

Overall, consumer households have a combined net worth of $108.6 trillion, up from $54.7 trillion in 2008 and $80.9 trillion in 2014, Tiburon found. The economic recovery pumped a lot of money into consumers' pockets and they are even saving some of it, Roame said.

In another positive trend for retirement readiness, consumers are saving at about a 6% rate again. It had dropped to 1% and 2%, Roame noted.

"For those who have owned a home and for those who have been in the stock market since the 2008 recession, they’re doing pretty darn well," he said. "Things are pretty good."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.