Every financial advisor dreams of a future when their expanding practice includes a large number of wealthy, retiring clients having portfolios north of $500,000.
But it’s time for a reality check.
That is not going to happen because more new jobs don’t pay much and worse, even people with 401(k)s are highly skewed in their account balances based on incomes.
New Jobs, Lower Wages
A new report says that among the 10 jobs projected to grow the fastest in coming years (between 2014 and 2024), half pay less than $25,000 a year, according to the Bureau of Labor Statistics (BLS). Worse, three-quarters pay less than the typical annual wage of $35,540.
The BLS says that many of these hot jobs are in the health care industry. This is a reflection of an aging population that will need more medical and personal services. But this industry only pays personal care aides, home health aides and nursing assistants about $12 an hour or less for a 40-hour workweek.
The exception in the health care industry is registered nurses that are paid a median wage of $66,640.
401(k) Balances Seriously Skewed by Incomes
As if lower-paying new jobs was not serious enough for wealth managers to build their future practices, their is also not much good news coming from those with 401(k) balances.
Another new report from the Economic Policy Institute found that 401(k) favor those with high incomes. The report said:
“Nearly nine in 10 families in the top 20 percent (with income of $104,000 or more) had retirement account savings, compared with fewer than one in 10 families in the bottom 20 percent (with income below $23,000). This disparity across income groups highlights a serious policy failure that is exacerbating income inequality as well as the existing retirement security crisis.”
This means that due to income inequality (another issue the financial industry chooses to ignore), a large segment of workers don’t have enough money to retire to retire on, so they are off the radar screens of advisors, but pose a future public policy problem.
Not Good News For Wealth Managers
Charles Erwin Wilson of GM famously said, “What was good for our country was good for General Motors, and vice versa.” By that, he was re-iterating another popular aphorism that a rising tide lifts all boats.
So if the new job creation statistics show fast job creation in poorly-paying jobs, often with restricted retirement benefits, how can retirement planning advisors remain on the sidelines in the current presidential campaigns? If advisors acted rationally and in their own self-interests, which is a basic tenet of homo economicus, advisors would be protesting in favor of a higher minimum wage that creates better paying jobs for more people who would then need professional retirement advice.
The Good Cop-Bad Cop Analogy
As it is today, the best advice offered by many investment and retirement planning companies is that Americans should not advocate for higher wages or the creation of a higher minimum wage. Instead, the billion-dollar investment firms, such as Prudential, commonly offer lame advice that people should save more, even as they have failed to get a pay increase in a decade. Prudential even has the advertising motto, “Think optimistically. Plan realistically.” But as the news reports, there is little to be optimistic about if you are a younger worker.
Even with Prudential’s $1.184 trillion in assets under management, including about $3.5 trillion of gross life insurance in force, it cannot come up with better advice for the average American.
But as a money manager and insurer, Prudential is a huge political contributor to every major state and federal industry and political organization in the nation. It’s also logical to assume they contributed to efforts to de-rail the fiduciary standard and fight against the minimum wage.
This is a good example of the good cop-bad cop financial services industry practice that happens when the individual advisor works to do what’s good for their client (despite conflicts-of-interest), yet the corporate office adopts policies that simultaneously work against the financial interests of that same client.
So if low-paying new jobs are going to be the new normal, maybe it’s time for wealth managers and retirement planners to re-adjust their business expectations or change their behavior.
But if you are a wealth advisor and want to invest in your own professional future, maybe it’s time for the investment firms and individual planners to advocate for policies that put more money into the hands of prospective clients. After all, a rising tide lifts all boats.