CPAs tap a wide variety of tactics in helping clients get their retirement plans in order

Despite the market's modest comeback since its March nadir, the crash and its psychological aftermath have played havoc with many clients' retirement planning efforts.

Earlier this year, for example, the latest retirement confidence poll conducted for the Washington-based Employee Benefit Research Institute plummeted at a pace "unmatched in the 18 years of the survey," according to the EBRI. The survey found that only 18 percent of workers are "very confident" that they'll have enough money for a comfortable retirement, against 27 percent a year before

As a result, CPAs who help clients equip themselves to retire have their work cut out for them. How can they help clients get back on track?

The experience of some CPAs during the boom times hints at the difficulty of today's challenge. Duane Myers, CPA, a sole practitioner with a middle-class clientele in Mt. Laurel, N.J., vividly recalled trying to discourage several clients from piling on debt when lenders were practically thrusting it upon them. "You couldn't persuade the client not to get the loan, but you knew their income was not high enough" to support it, he said. "So many people have borrowed so much money that even if they have a nice pension, they might not be able to retire without working part-time."

And even some of the very-high-net-worth clients of Donald Bromley, CPA, a partner with Gunnip & Co. in Wilmington, Del., are feeling the heat. "With the banks tightening up on credit, they're being forced to make different choices now," he explained.


No longer living beyond one's means is one thing; when the lending party's over, there is little choice. But dialing up the retirement savings and investment program is another thing entirely - especially when clients are in a state of shock. "People tend to bury their head in the sand," lamented J. Graydon Coghlan, of Coghlan Financial Group in San Diego. Coghlan's firm, with 10 offices in California, conducts retirement planning seminars for thousands of corporate employees each year.

Extracting clients' heads from the aforementioned sand can begin with helping them to put stock market performance - the abysmal, the spectacular and the ho-hum - into a longer perspective.

"People look at the high-water mark," said Roger Ochs, president of H.D. Vest, a national broker-dealer subsidiary of Wells Fargo with 5,400 registered reps - primarily CPAs and enrolled agents.

In addition, it's important to remember, said Scott Ditman, CPA/PFS, a tax partner with Berdon in New York, that many clients may not even be aware "whether they're off track or on track." The opportunity to help clients begin the retirement planning process in earnest, he said, is when they call in a panic after receiving a brokerage account statement showing assets significantly smaller than their previous statement.

When it comes to assisting clients with retirement planning, Ditman believes that the first order of business is getting clients to regain a sense of control over their situation, rather than simply being "agitated about problems they can't fix." He recently helped a client through that process by getting her to analyze her spending patterns, and prioritize "what she really needs."

"When you write it all down, you put a different value to things ... you really begin to understand the lifestyle choices you are making, and the things you don't have to do," Ditman said. Through that process, the client was open to the suggestion that she curtail some discretionary expenditures (including gifts to children) that were jeopardizing her retirement financial security.

Ditman also accompanied her on a visit to her investment broker. The upshot was a redeployment of assets to a more conservative posture that would still generate a sufficient retirement income, but limit the potential for the level of volatility that had thrown her, justifiably, into a panic.


Ditman's approach reflects an appreciation for the power of "behavioral finance" - the field of research focusing on the emotional dimensions of people's attitudes and actions around money.

One prominent fan of behavioral finance is Kenn B. Tacchino, JD, director of the New York Life Center for Retirement Income at The American College. He urged CPAs not to rely on their technical savvy alone. CPAs "would be well-served by listening to sociologists, psychologists and social workers," he said. In working with clients on retirement planning - or, for that matter, any other financial goal - CPAs typically scratch the surface of behavioral finance with a rudimentary assessment of clients' risk tolerance. "But money has many meanings beyond risk tolerance."

Added Josh Wiener, Ph.D, head of the Department of Marketing at the Spears School of Business at Oklahoma State University, "I know it will sound peculiar to a financial person, but if you think of retirement planning simply as a financial problem and take a mechanical approach, odds are it isn't going to work."

For one thing, Wiener said, if the numbers are too daunting, clients will simply throw in the towel. "It's like telling someone they have to lose 100 pounds. They'll say, 'Forget it.' They have to work their way up in manageable steps."

Wiener echoed Ditman's focus on the importance of helping clients gain "a sense of control, confidence in their ability to reach a positive outcome." But that positive outcome probably isn't a number.

"None of us is Scrooge McDuck. Very few people are focused on a specific pot of money so that we can go down to the vault and shine the coins," he said. "What people see is a cottage on St. Simon's Island, or traveling with their kids."

However, a client's financial situation might require some adjustments to that visualized retirement goal - but not a shattering of the dream. "OK, we were talking about a big house on Cape Cod. You can still have a house on the Cape, but maybe it's not going to be big," Wiener said.

And instead of rendering a definitive prediction of a financial outcome based on a fixed course of financial action, advisors should emphasize the need to monitor progress regularly. "Each time they come back, you can raise the amount they need to save," if appropriate, he said. "It's how we get seduced, bit by bit."

It's not a matter of playing games with clients, however. Wiener said that CPAs need to "get a feel from them as to what they realistically think they can [invest] at a particular point in time."

The gradualist approach is also favored by Coghlan when advising clients in ratcheting up 401(k) deferrals. Often he will suggest a 1 percent of compensation increase, and six months later, another 1 percent jump.

In addition, Coghlan always shows clients the impact of the deferral change in terms of net pay. Giving up an additional $60 for $100 more in retirement savings often seems reasonable to clients, he explained.

Coghlan is also a strong believer in keeping the numbers as simple as possible. For example, he typically tells clients they can expect an average 6 percent annual return on their retirement investment portfolio. He does not believe clients need average return estimates for the equity and fixed income components of their portfolios. "If they're several years out from retirement, the market is going to change so many times between now and when they retire that there's no reason for us to get too detailed. We tell them, 'Plan on the 6 percent, and if it's better, you can retire sooner. Great.'" Since Coghlan and his staff meet with clients twice a year, tactical adjustments can be made along the way as circumstances dictate.

Those tactical changes don't always meet with client approval, however. Even several months after the stock market appears to have moved past - for now, at least - its phase of maximum volatility, many clients remain skittish. In theory, some clients may need to be encouraged to raise their equity allocations. But how hard to nudge them in that direction may be a delicate matter.

"We would never recommend that a client take on more risk than they can handle," maintained Vest's Ochs. "But," he added, "it's important that we explain not only the risks of the markets, but the risks of the alternative" - staying on the sidelines too long.

(c) 2009 Accounting Today and SourceMedia, Inc. All Rights Reserved.

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