Winning Over Prospects by Focusing on D-E-B-T

For financial advisors, perhaps the surest way to a prospect’s heart is through a four-letter word: d-e-b-t, or managing debt to be precise.

After all, who better to grow with than a client for whom an advisor has helped slay the debt dragon and earned the privilege of managing the rest of the financial relationship from investments to insurance to retirement planning?

“I’m a Gen Xer and I have some clients who have debt as a primary issue for them, but most of them are in denial about debt,” said Aaron Thompson, founder of AGT Wealth Management in Annapolis, Md.

Thompson discusses cash flows with clients only to find that “It’s the Ubers, it’s the meals, it’s the things you don’t really account for that add up into a big number.”

Advisors usually approach a financial relationship by proposing to manage assets, mapping out a plan to let those assets grow, finding ways to shelter assets from Uncle Sam and then moving assets into places that will generate enough income for life.

In other words, advisors approach planning – and clients often like to talk about – managing what’s “in the black,” or the asset side of the balance sheet.

Sometimes clients prefer talking about the asset side, dwell on investments and get excited about double-digit returns instead of lowering the car payment or cutting the fat out of monthly restaurant meals charged to the credit card, Thompson said.

But by approaching the relationship through the door of debt, advisors manage what’s “in the red,” or the liability side of the balance sheet.

Budgets, which control spending, and revolving debt or borrowing, which finances spending, are on opposite sides of the equation.

Gen X: “Squeezed” by Everyday Debt

Every generation, it seems, faces its own debt demons and surveys reveal budgeting remains a nagging household bugaboo across Gen X, baby boomers and millennials.

Caught between baby boomers and Generation Y, or millennials, Gen Xers find themselves squeezed by their children coming up behind them and by their aging parents living longer and sometimes moving back in with them.

A 2014 study by the Federal Reserve Bank of St. Louis found that 44-year-olds (Gen Xers) were the most “indebted birth cohort” in the country.

They owed an average of $142,077, though much of that was mortgage debt.

Consider, too, Gen Xers’ rising “bad” debt burden.

Credit card and student loan debt has soared 15 percent since 2004, the Allianz Life Generations Ahead Survey out last month found.

More Gen Xers (49 percent) partially pay back credit card debt each month compared to 46 percent in 2014, and 42 percent of Gen Xers believe that going into debt to handle day-to-day purchases is “just a fact of life,” the Allianz survey of 1,000 Gen Xers found.

“Gen Xers are becoming more careless with credit, yet at the same time less committed to proactively addressing their retirement security,” said Paul Kelash, vice president of Consumer Insights for Allianz Life Insurance Co. of North America.

“This is a significant issue that needs immediate attention,” he said.

Any financial cushion – for those with that kind of luxury – tends to be thin and fragile savings buffers only increase the chance of relying even more on debt to cover unforeseen or emergency operating expenses.

Boomers: Worried about Medical Debt

For baby boomers, with much of their lives behind them, debt risks rearing its ugly head but this time in the form of medical debt.

Medical debt, which has been linked to many bankruptcies, needs to be part of the budget conversation, said Dr. Carolyn McClanahan, a financial planner and former emergency medicine physician.

When she joined the ranks of financial planners about a decade ago, she couldn’t even recall health care costs in retirement being brought up.

Fast forward 10 years and McClanahan, a fee-only planner and director of financial planning for Life Planning Partners in Jacksonville, Fla., has to turning down invitations to speak to advisor groups about making health care costs part of the retirement planning discussions.

She simply has too many requests, she said.

More than 1,100 miles to the north, in the Boston suburb of Danvers, Mass., health care consultant Ron Mastrogiovanni, CEO of HealthView Services, which provides retirement health care data and planning tools, said his company’s platform receives more than a million requests a month for cost projections.

“Three years ago, it was a fraction of that,” he said.

The present value of lifetime health care costs for a 65-year-old couple retiring today would come to about $404,000, according to HealthView’s 2017 Retirement Health Care Costs Data Report

There’s no question there’s been “movement,” at least anecdotally, among advisors to integrate health care costs into the retirement planning equation.

“The absolute most important issue is making sure future retirees have a handle on estimates of how much healthcare will cost,” said advisor Mark G. Smith, president of Vision Wealth Planning in Glen Allen, Va.

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

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