Journal of Financial Planning: July 2021
Sean Lawlor is senior vice president and head of enterprise data solutions at Envestnet. For more information about the Envestnet vision of The Intelligent Financial Life™, please visit envestnet.com/intelligent-financial-life.
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The covid-19 pandemic has led to many changes in Americans’ daily lives, as well as their priorities and the type of service they expect. Financial advisers can aim to better address the anxieties today’s consumers are facing while providing more holistic and integrated services by shifting from a financial planning-based business model to one that prioritizes life planning, with an acute focus on the intersection of health and wealth.
Using data as fuel, advisers can utilize modern financial planning technology solutions to drive deeper awareness, engagement, and informed decision-making across clients’ financial lives. Going forward, I believe the industry will need to embrace technology platforms that connect all aspects of consumers’ financial lives in one ecosystem, which they can access whenever they need it—enabling advisers to add value whenever a client has a question about anything related to money.
The Intelligent Financial Life: Life Planning
We know that today’s consumers interact with money in a stream of transactions and decisions each day. But these interactions are disparate and overwhelming to analyze in the context of their present financial lives versus their future financial lives. There’s an increasing consumer demand for a seamless connection between how they’re spending their money and their plans for the future. The financial planning industry must deliver.
Today’s technology is making this possible, and we see a necessary shift within the advisory model needing to take place in tandem. In the past, advisers were investment-focused, working with their clients to help them select and manage stocks, bonds, and other securities within their investment portfolios. More recently, advisers have started to play a more active role in their clients’ finances, beyond just investments. As financial planners, they help their clients construct plans based on their unique goals, risk tolerance levels, and personal situations, offering advice related to investments, tax planning, retirement, and more.
The next phase is life planning, a natural extension of this already holistic approach to advice. While financial planning focuses more on the quantitative data, life planning marries that with qualitative information related to a client’s values, aspirations, fears, habits, etc. In doing so, advisers can begin to offer guidance related to all aspects of a client’s finances, including, for example, credit and insurance.
This process will help create the connection clients are seeking between the present and the future, while also fostering a deeper adviser-client relationship, based on a shared understanding of a client’s entire financial picture and the adviser’s ability to offer solutions to anticipate needs, address concerns, and support better outcomes.
The Intersection of Health and Wealth
Life planning requires understanding clients’ emotions related to their finances. Many people today have a poor relationship with their money, exacerbated by a lack of connection, which often leads to stress and anxiety. Life planning, as part of delivering the intelligent financial life, can help to address this and create balance.
A critical component of life planning is healthcare, which can be one of the biggest expenses a person faces in retirement. In fact, according to Fidelity, a 65-year-old couple who retired in 2020 can expect to spend $295,000 in healthcare and medical expenses throughout retirement, not including the cost of long-term care.1 If unexpected, these expenses can destroy a retirement plan, so it makes sense for advisers to truly consider the intersection of health and wealth to give their clients confidence and help mitigate future challenges.
How Technology Is Supporting the Shift
For many advisers, this is a new way of thinking. To make the transition easier, some wealth management and financial planning technology platforms are looking to simplify the process of browsing and enrolling in a supplemental Medicare plan. These supplemental plans can help cover some out-of-pocket costs that standard Medicare doesn’t cover (basic Medicare coverage only pays about 80 percent of approved costs for hospitals, doctors, and medical produces—and usually doesn’t cover prescription drug costs or dental care).2 Having such a plan in place (before it’s needed) can lead to considerable savings. And while many consumers find Medicare complex to understand and navigate, offering such a service can extend an adviser’s value proposition, while adding no additional overhead.
Insurance, beyond health insurance, can also help proactively address healthcare-related costs in retirement, which can be staggering if your clients are not prepared to address them:
- Fourteen million adults in the United States needed long-term care services in 2018.3
- In 2020, the median cost for a private room in a nursing home was $105,852.4
- The estimated cost for end-of-life care in 2019 ranged between $233,000 and $367,000.5
Simplifying access to annuities and other insurance products through the wealth management and planning technology ecosystem offers another way for advisers to conveniently and efficiently offer critical protection for clients, while supporting the entire lifecycle of advice, from accumulation to decumulation.
Currently, within some technology platforms, which are connected to insurance providers, advisers can offer the protection of insurance products through guaranteed income and best-in-class annuities. This can help clients avoid outliving their savings, especially if they need to draw from them for health-related expenses.
Access to long-term care insurance is also critical in the post-pandemic environment. Such insurance can help promote retirement security and help to offset the impact of unexpected costs, reducing the potential burden for clients and their loved ones. Moreover, modern technological innovations can make the process compellingly simple, so that advisers don’t need to understand the myriad complexities of the products in order to sell them.
Credit and trust services available on cutting-edge platforms can also support the concept of life planning, providing the opportunity to:
- Integrate lending advice and solutions to help clients manage both sides of the balance sheet to build net worth and pursue their goals.
- Utilize trust accounts to facilitate the efficient transfer of wealth from generation to generation.
A Seamless, Intelligent, Customized Experience
In the past, insurance, credit, trust management, and healthcare services would have required separate, outsourced partnerships and additional time, effort, and overall management. Furthermore, they would have required clients to interface with multiple advisers. However, when third-party providers of these products are integrated with the cutting-edge technology platforms available today, advisers can provide a broader range of advice and serve as the single point of connectivity for their clients. With the ability to leverage data-driven recommendations and analysis, advisers can provide more thoughtful recommendations for their clients’ unique situations. This is optimizing what advisers already look at, bringing everything together—for them and their clients—in one place, in real time.
Further, these interconnected wealth management and financial planning ecosystems can be leveraged digitally, without the delay of cumbersome, paper-based processes. While this promotes efficiency, enabling advisers to meet and spend time with more clients, it also allows them to broaden their target prospects to include those who can’t (or don’t care to) meet in person.
As one cohesive ecosystem, this type of technology platform is poised to help advisers and their clients understand, measure, and optimize their financial lives—to create connection. Now, the industry is continuing to push forward, expanding its offerings and enhancing those already in place to be in line with the next evolution for advisers: life planning. It’s time to move into the future.
Endnotes
- See “How to Plan for Rising Health Care Costs,” at fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs.
- See “Medicare Advantage vs. Medigap,” by Ronni Sandroff at investopedia.com/articles/personal-finance/071014/medigap-vs-medicare-advantage-which-better.asp.
- See “Long-Term Services and Supports,” from the AARP Public Policy Institute at aarp.org/content/dam/aarp/ppi/2019/08/long-term-services-and-supports.doi.10.26419-2Fppi.00079.001.pdf.
- See “Cost of Care Survey,” from Genworth at genworth.com/aging-and-you/finances/cost-of-care.html.
- See “2020 Alzheimer’s Disease Facts and Figures,” from the Alzheimer’s Association at alz.org/media/documents/alzheimers-facts-and-figures_1.pdf?_ga=2.164115510.843081549.1603820988-665695041.1603820988.