Retirees are some of the biggest financial advice customers, coming to wealth managers for help with reverse mortgages, annuities — and even vacations.
The first two offer little instant gratification for either the wealth manager or the client, but when it comes to financial planning for vacations, wealth managers are reaping tons of goodwill with their clients — and sometimes other business. With the recession making every penny count, demand for the service has been steady.
"People all over have seen their net worth shrink in the past couple of years," said Geoff Feinberg, a vice president at GfK Roper Public Affairs and Media, a New York market research firm. "Everyone's tightening their belts, especially those without income who have seen their savings drop dramatically."
Despite the economic climate, investors have not eliminated vacations — 42% of 1,000 respondents to a survey by GfK Roper said they plan to take a vacation this year. In 2005, 49% of respondents in a similar poll by AP-Ipsos said they planned to take a vacation.
Planning a vacation may be difficult for clients who are at or near retirement age, since their nest eggs are on the line, Feinberg said.
Justin Dams, a Credit Union National Association rep at Veridian Credit Union in Waterloo, Iowa, said he reassures his more conservative clients. "Sometimes they expect me to talk them out of taking vacations, but instead I show them how to accomplish this dream," he said. "I think it's one of the greatest investments they're ever going to make in terms of what they get out of it. They're creating memories they'll be able to relive for years."
Tightfistedness can be bad for clients, Dams said. "You can fail by never tapping the nest egg you've amassed," he said. "All some people know is how to save, not how to use the money. And to my mind, that's a failure."
These days many are afraid to spend, said Brian Smith, a Credit Union National Association rep at Deere Employee Credit Union in Moline, Ill., but most of his clients are good savers and they really do have the cash for a vacation if they work with him. "Some say they don't want to take a trip right now because they're concerned they'll need the money for something else — health care, housekeeping or maybe just to shore up funds in a bad economy," he said. "A client has canceled a couple of times, but 80% of my clients go through with their vacation plans."
Smith said he makes vacation planning part of the overall financial plan that he provides for his clients. "A lot of it is done when we meet initially," Smith said. "I look at projected expenses for one to five years and I capture a client's big goals that way, and one of those is travel. I carve out the total plan and there's usually a little extra spending money leftover."
Smith and Dams typically plan for client vacations a year out, allocating a certain amount of non-retirement-income-generating assets each year to cover the cost.
The cost of an annual vacation can be considerable, but it's usually dwarfed by the cost of the first grand vacation that clients take when they retire. One of Dams' clients, a couple, wanted to take a Caribbean cruise with their four children and nine grandchildren. He said they had Social Security, a "fabulous" pension to pay the bills, plus a Roth IRA and some nonqualified investments.
Dams helped them set the date for the following summer. He ran the numbers and allocated $20,000 for the cruise from the couple's nonqualified funds.
That $20,000 is now in a short-term CD timed to mature when they need it. The couple only needs $15,000 for the cruise, but Dams allocated $20,000 so they can "do it right." If they don't spend it, the excess goes back into the pot.
The couple was so pleased that they soon turned over all their retirement assets to him.
In their zeal to make money for their clients and themselves, financial advisers can lose sight of the goal: using the money to realize goals. It's an adviser's job to sweat the small stuff, so retirees can enjoy their freedom, Smith said.
Advisers may have to rethink their own relationship with money — or at least their clients' money — when it comes to helping clients reach such goals. "Some advisers would just see $7,000 on the table," Dams said. "But I won't trade a client relationship for a transaction."
This approach wins more business in the long term, he said.
"It clicked right away with me," he said. "I love helping people and the way to do that is to figure out what's motivating them. Promising to earn them an extra 0.25% bores them. I want to be the one they call their friends about, saying 'Justin helps me; he doesn't try to sell me anything. You can call on him whenever you don't know what to do.'
"When a financial plan helps clients pay for a vacation, they'll be on a cruise with people like themselves, thinking, 'My adviser helped me do this,' and they'll tell people they meet about me."
To reinforce that, Dams automates client vacation follow-ups. He does this partly to get to know them better, but also so he can be part of their happy memories.
