Gina Thompson: Empowering Clients Through Education | Next Gen

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Thank you, Gina, for coming today. I really appreciate you joining me today on this podcast.

Thank you so much for having me.

I tried not to say today like 18 times.

Welcome to Barron's Advisor: The Way Forward Next Generation, a special series spotlighting the emerging leaders shaping the future of financial advice. Twice a month, we'll be digging into the strategies, insights, and game-changing moves that will help you take your practice to the next level.

I'm your host, Allison Tucci, and today I'm with Gina Thompson, Senior Vice President, Portfolio Director at RBC, and she's helping us all answer the question, will I run out of money? Welcome to the podcast, Gina.

Thank you for having me, Allison. Very happy to be here.

Before we get into it, I'd love to hear a little bit about your clients, your book of business. Really, what is it all about?

I work with successful active families. Who are looking for guidance with their financial wellness. So that can range in different ages, different backgrounds. Many times I have multi-generations, meaning I have grandparents, parents, and then ultimately their children. No grandchildren yet, but I'm sure that will come as time goes on.

So in our conversation before the show, when we were chatting, you mentioned a question that you receive all the time from your clients, and it's the "will I run out of money" question. I'm surprised sometimes that people would ask that, especially people of certain financial wealth. How would you advise advisors who hear that question from clients?

So what we always start with is a lifestyle plan, and the lifestyle plan encompasses a budget or a worksheet. So we will send them essentially an Excel spreadsheet going over all the different expenses. That one might think about both in their earning years as well as retirement. And somebody could sit across from me and say, I'm only spending X. And then we come to find that after reviewing the spending plan, they're actually spending X plus 2. So I don't usually go by what people say. I want to dig into the numbers. Not that I don't trust them. I just think that sometimes people don't really truly understand what they're spending. So that piece helps and allows us to figure out if they err on the side of being conservative or if they're actually spending more than maybe they should.

Are there any sort of common assumptions you approach when you look at this plan?

There aren't common assumptions because everybody is so unique in their circumstances. But in terms of making sure that we are kind of checking all the boxes, we ask a lot of deep questions to kind of pull out the information. Because a lot of times, people don't realize that they have, for instance, an insurance policy that they're paying $25,000 a year for, if not more, or a long-term care policy that maybe they've, you know, still have to pay for the next 10 years. They're really thinking about their spending on the day-to-day, but not bigger picture items. So I think just having detailed conversations and asking these pointed questions, and of course with no judgment. If you want to spend X amount of dollars on a country club or on, you know, a Maserati and you could afford to do so, we're not here to tell you that you can't. We're just here to make sure that your money lasts you your lifetime.

What about the external factors like inflation, interest rates? How do you factor those into your projections or your planning?

Well, we always plan with a more conservative rate of return, even though, as you know, markets have had pretty significant returns, especially over the last 15 years. And markets annualize out around 10.5% on a longer period of time. We still plan for a lesser return based on inflation because inflation is a moving target. And we want to make sure that the spending needs of our clients continue to last over longer periods of time. And then the second piece is having a guaranteed income stream.

Okay. So we make sure that everybody has some type of guaranteed income stream.

And for some, they may have a pension, but most of us don't have a pension. Those are kind of a thing of the past. So we typically use investments such as an annuity, which can have a guaranteed income for a lifetime.

Can you explain a little bit more about how you really assess clients that are now living well past potentially what they thought they were going to live, and they don't want to outlive their money?

It's a great question.

And 50% of people actually live beyond their life expectancy, especially women. And so we have to ensure that their assets are going to be lasting for them as well. So annuities are a great complement to a traditional investment strategy. So when people ask us whether or not it makes sense, obviously it depends on suitability, of course, but we don't necessarily really look at it as we're looking at equities and fixed income. This is a completely separate, reliable income stream that someone could have in retirement. And like I said, it complements their investment strategy. So depending on where you live, every state has different terms for their annuity, but you can have cap rates, for example, where maybe the annuity will kick off an 8% return.

Okay.

If the market hits 10%, you're only getting 8%, but if the market's at 5%, you're still getting the 5%. $5,000 and they'll have a buffer where at the end of the year it would still be applied a 3% return to the client's investment. So people like to know that they have this reliable income stream that continues to last no matter what the markets are doing. So I feel like that provides comfort.

That's also probably great for your older clients that don't have that income stream coming in. They want to see some passive sort of money into their pocket. What are your thoughts on Social Security? That has been a topic that's been, you know, back and forth in terms of, is it going to be here? Is it not going to be here? How do you factor in Social Security into your current clients' portfolios? And then what are your thoughts on it in the next 5, 10 years?

I don't think, well, at least for the people that we're working with, Social Security is minimal in terms of what it what it's actually paying for with their spending plan. So it might be, you know, 5% of their overall spending plan. So I don't want to say whether it's here or not is not going to matter. But I think we have to figure out how to generate income and appreciation outside of Social Security, because your guess is as good as mine. It might not be here in 5 years, but we certainly have to plan for the worst. So keeping some type of uncorrelated investment, whether it's an annuity or an alternative investment, private credit, you know, that's something that we look to as well that's not correlated to S&P declines.

So let's talk about private markets for a second since you broached the topic. What are your thoughts on private markets going into retail?

I think it depends on the client. I am a strong believer in being educated in all the things that are being placed in your portfolio. We aim to empower our clients through education, and actually we host quarterly calls on various investment topics, both planning and investment topics, I should say. And we in the past have had conversations on alternative investments and are they appropriate, but just more so from an education standpoint, not necessarily on a sales pitch.

And how do you determine if they're appropriate or not? Just because they're getting so much play in the news, I feel like you can't open up a news channel without hearing alternative investments, either from the private equity firms themselves or from the brokerages, the wirehouses, or RIAs, or independent channel. It seems like it's a hot topic. So I'm sure your clients are asking about it. How do you determine if it's appropriate or not for your client?

Yeah, a few ways. One, if they can handle you know, if they have assets that are liquid, because these can be and tend to be illiquid. So making sure that it's a small portion of their overall asset allocation, that would be the first way. The second is reviewing the deck with the client of the specific investment and looking at past returns or historical returns, which obviously don't guarantee for the future. However, it's a good indication during periods of volatility, how these investments perform or outperform typically, and just looking at, you know, correlation between the investment and other securities. But this is an ongoing approach. This is myself and my team looking to both RBC's research as well as speaking directly to the investment firms to ensure that we are thinking about all the things, not just when things are good.

You're listening to Barron's Advisor, The Way Forward: Next Generation. We're going to take a short break.

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Welcome back to Barron's Advisor: The Way Forward, Next Generation. Let's get back into the conversation.

A lot of folks later in age often have expenses they didn't expect. You know, medical expenses are one of them. And you're hearing more about HSAs, so health savings accounts, and various different means and vehicles. What are your thoughts on health?

Well, we plan for it in our lifestyle plan. So going back to gathering the information for the spending plan, which is the budget and understanding the expenses, we also build in an estimate of what medical will cost, not only in the year that we do the plan, but we tack on a 6% inflation rate as well, which is a little bit different than the normal 2% to 3%. It's actually— medical is more in line with education. Education and medical tend to hover in that 6%. So we build that in as a worst-case scenario, and then we stress test the lifestyle plan to ensure that all these pieces are being able to be paid for in retirement, including medical.

That's, that's such an interesting topic. So you stress test. So what sort of levers do you pull to help course correct your clients?

It can be delaying retirement. So our lifestyle plan will also allow us to tweak and change and say, Mr. and Mrs. Client, we had you retiring at age 65 and the probability of success was 92%. However, with this new expense, you know, fill in the blank, unfortunately, we can do one of two things. You could retire with less income, or we can push out your retirement age. So that's a way that we stress test to make sure that people are aligned with their goals.

So in terms of setting expectations with their clients, have you ever had a client— I'm assuming you have— that's gone from anxious to confident about their financial future, What were those steps that you, you took to make that pivot with that client?

Well, this is great timing because we're getting a lot of those calls more recently. We are very process-driven, and we have quarterly calls with our clients just to check in. So to talk about their financial plan or to talk about what's happening in their lives. Maybe they had a job change, maybe somebody unfortunately passed away. So because we're in constant communication with our clients, we have a good pulse on their emotion because a lot of what we do day in and day out is managing emotion. Sometimes I like to joke with my team that the hardest part of my job is the behavioral piece, not necessarily the investment piece. People can be emotional about their—

We're people. People are people. People are emotional.

Very true. Very true. Whether it's politics, who got into the government, who's out of the government, whatever that may be. But our job is to manage their expectations on the future of their investments and kind of leave the emotional piece out, which is more just about listening and hearing what they have to say and talking through what's going on and reverting back to historical times where things may have been similar but different, right? I always tell clients that we've never seen this before. 2020, we've never seen this before. 2008, we've never seen this before. But there's periods in time that have these black swan events that we have to be prepared for. And we're prepared because we have a financial plan in place. We speak on a quarterly basis and we're reviewing, you know, the what-ifs, as they come.

Is there a different way that baby boomers viewed retirement than Generation X, than millennials? And how do you really approach those conversations differently?

We talk to clients about their money script. So their money script can be that they're frugal, Maybe their parents, going back to their parents, maybe they didn't spend a lot because they were post-war generation. I think that a lot of what we feel and do with money comes from somewhere. Maybe it was your father, maybe it was your grandmother or your favorite aunt. But we have these themes that we create based on our backgrounds. And so we try to understand people's money scripts by, again, asking questions in our initial meetings to see if we can break those barriers, but also, again, educate and make sure that people understand that they're just scripts and we're here to overcome them with education. And that's what we try to do.

Are there any themes that you see for the more recent generations with retirement? I'm thinking about my friends and some of the conversations that we have. Folks are like, I want to retire early, or I want to semi-retire, or I made money off of XYZ. I'm assuming that's a different approach than, you know, our parents' generation, our grandparents' generation with retirement. How do you approach that next generation when they have these different needs or expectations with retirement?

We show them compounding and what compounding looks like over longer periods of time. So maybe compounding over 40 years of, with a rate of 7% will look very different compounding with maybe half of that time with a higher rate of return. So again, going back to education, we model that out. We have planning tools to show if you earn this specific rate of return, which we know is not linear, but say you did earn a specific rate of return over a long period of time, this would be what your outcome would look like versus keeping your money compounding over a longer period of time. So it really just varies depending on who we're speaking to. Some people are fortunate enough to have gifting being done by parents or grandparents. Some people are inheriting assets. So it runs the gamut, but we're able to pinpoint what they'll need just based on conversations. And again, planning to make sure that it's in line with their needs.

Any common themes that you see with the next generation? How do you prepare these people for, you know, a different type of environment than their parents had?

Yeah, renting versus owning has come up quite a bit over the last couple of years now that rates are back to normal, not essentially zero. And so a lot of our conversations have been, especially with the younger generation about saving. At least 20% of your salary should be saved, whether that's via your 401(k) or 403(b) or a taxable account. But socking away 20% of your earnings should be put in an investment account in order to make sure that you have enough money to live off of. You can't spend everything you have, although that seems very fun. You won't be able to have the things that you want and need later in life.

So you mentioned to me that your team really wins on education. Can you explain that a little bit more detail?

So we aim to empower our clients through education. Although our clients trust us to do what's right for them and their family, we find that it's more beneficial for everybody to understand, at least at a basic level, of what we're doing and how we're doing it. And so we have quarterly educational calls where we invite clients. They can invite friends or family, and it's on various topics. So for example, next month we're hosting a call on donor-advised funds. Okay. And previously we hosted a call on the election and how the election can impact markets. We also have an annual client appreciation event, which is coming up in June, and that's going to be just a fireside chat with myself and one of the portfolio advisory group members at RBC to talk about what's happening in the markets. So we do all these events for clients to feel supported in their decisions that they're making with us as a team. And we feel like that has really shed light on what we do to differentiate ourselves from other people in the field.

I'm sure there's something that you want to leave the audience with. Is there anything additional that you would want to say before we close out today?

Yeah, I think it's an interesting time in the markets. And what we've been kind of sharing with our clients is 3 things. One, stay the course. Make sure that you are considering your lifestyle plan because we did that before all the market volatility. 2, know what you own. Make sure that you have transparency in your portfolio and understanding what you have is really important during times like this. And the third is making sure that you trust the people that you work with to continuously advise you on both your financial needs, but making sure that they understand your holistic big picture.

Well, that's fantastic. Thank you, Gina, for coming. Really appreciate you joining me today on this podcast.

Thank you so much for having me.

The production team for Barron's Advisor: The Way Forward: Next Generation is Ellie Ismailidou, Rebecca Bisdale, Paul LeBlanc, Kinga Rojak, Joseph Lesby, and Alexis Moore. Melissa Haggerty is the executive producer. Jenna Mathis is the director of programming for Barron's Advisor Programs. Greg Bartalis is the editor-in-chief of Barron's Wealth and Asset Management Group. We'll be back soon with another episode. Thanks for listening.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.