Beacon Flash: Building the Bridge Between Generating Wealth and Meeting Financial Goals – A Conversation with Sheryl O’Connor, IncomeConductor

In the individual’s life, they’re moving from their working phase into their retirement phase. And your experience with a financial firm should meet that it shouldn’t be so segmented uninterrupted. And if the advisor truly wants to ensure that their clients are financially secure throughout their lifetime, they need to help them plan for and meet those goals, regardless of which phase they’re in.

Welcome to the Beacon Flash to go podcast for enterprise wealth management professionals looking to stay ahead of the curve hosted by Chad Kispert, Managing Director of Beacon Strategies. This podcast explores the future of the industry and the most pressing issues facing today’s top leaders. Join us each week as we sit down with industry experts to discuss the opportunities and strategies for success.

Chip

I am so excited to have Sheryl O’Connor with us today. Cheryl, welcome.

Sheryl

Thank you. It’s great to be your guest on your podcast and very grateful to Mark Butler for the introduction.

Chip

Well, you just stole some of my thunder there. You know, I remember when Mark introduced us it was back in the middle of COVID. You know, everybody was sitting six yards apart, but my relationship has been terrific because I’ve been able to learn more about what you do, and the really cool stuff that you’re doing with your firm. So I look forward to spending the next 20 minutes or so talking about financial planning and what the future looks like and the hole in that bucket of information.

Sheryl

That’s one of my favorite topics.

Chip

So Sheryl, do me a favor. Just give me a quick kind of, let’s give the audience a quick overview on Sheryl O’Connor.

Sheryl

Okay. Well I started out as a professional musician and educator and then moved into software development working at some large insurance companies in the Hartford area, became a strategic program manager and then decided later in life with my husband and a partner to start an asset management firm and become an entrepreneur. So I built a TAMP and out of those experiences and working with advisors and many of our clients who were in retirement or close to retirement I became interested in the area of retirement income planning. And I met a gentleman out in Denver, Phill Lebinsky, who is a specialist in this area and we teamed up with my son Tom O’Connor and created IncomeConductor.

Chip

That is really cool. And you know, it’s funny because when we look at this industry, there’s so much nuance to this industry, that really, really specialized knowledge is needed to be able to build out some of the software products that are out there, as well as just good thinking right. So, you know, right off the bat, let me ask you this. What’s your perception of the state of financial planning today?

Sheryl

Well, I think nicely over the last few years I’ve seen the industry starting to value financial planning as the legitimate service offering in addition to managing a client’s assets. And if you think about it, if the advisor’s goal is to help a client be financially secure, they need to deal with the client’s entire balance sheet so Financial Planning involves looking at both sides. You know, how do clients generate wealth through investing? And how do they use that wealth to meet their goals which usually involve saving spending and passing that wealth on to others?

Chip

Sure. You know, it’s interesting over the years, you know, we’ve written white papers on, you know, all different aspects of financial planning and financial planning really has, you know, a number of different facets to it, which I find incredibly fascinating. And at the same time, it can be incredibly overwhelming, right. So, show you just talked about, you know, kind of having a balance sheet approach. That’s a lot of data to be able to pull together. I mean, that’s a real challenge.

Sheryl

And it is, but we have the data available. You know, we have the technology to integrate that data into programs today, and we shouldn’t be using it.

Chip

You know, it’s fascinating because in the last month I’ve seen technology. I know Morningstar has been working on being able to pull IRS data, right. We see at firms like AssetMap, being able to be kind of that balance sheet that you talked about. But you know, one of the things you also said a little earlier was that firms have been embracing financial planning. Traditionally, we’ve seen about 15 to 20% of advisors that really are financial planning centric. We’ve seen a lot of firms with the rhetoric, right. But as we look at today, where we see this kind of convergence of banking, insurance investments in retirement, why is that number so low? Because the reality is a financial plan is all about a person’s future. Right? And taking all the aspects into account and you said, Why do you think it’s been such a hard effort to kind of lift those financial planning numbers up?

Sheryl

Now? I think it’s just an unfortunate vestige of how our industry has evolved and traditionally served the public. So from a product perspective, there have been two camps. There’s the investment camp, and there’s the insurance camp who have been both competing for the clients assets and that investment camp has been further divided into the wealth camp and the retirement plan camp. Yeah. So when you really look at it, though, from a client’s perspective, it really doesn’t make sense to approach, you know, the issues that they have this way and it really doesn’t serve them well. So think about the individual’s life. It’s a continuous arc. They’re moving from their working phase into their retirement phase, and their experience with financial firms should mirror that it shouldn’t be so segmented uninterrupted. And the advisor truly wants to ensure that their clients are financially secure throughout their lifetime. They need to help them plan for and meet those goals, regardless of which phase they’re in. And that typically requires using products from both camps, the investment and insurance sides based on that product, best meeting a specific goal. And you know, insurance products can meet goals. Better than investment products and vice versa. So this to me is being a true fiduciary and acting in the client’s best interest.

Chip

It’s not an easy answer. It really gets it you know, especially in light of a you know, I can do this transaction easily and get paid for right or I can manage money. I don’t really need to dig into this and I get this revenue stream. That financial planning layer is a lot of work. And I think it bears incredible rewards. So help me understand you’re we’re we’re What do you envision as the future of financial planning over the next 5-10 years?

Sheryl

Well, that’s a great question. I can tell you what I’d like to see. And that’s what I love to hear. At income conductor we promote the art of financial planning, which brings together the science of planning and the client persona. So the science focuses on rates of return tax efficiency, withdrawal rates, those are that’s the traditional view of planning. The client persona is made up of the client’s goals and concerns, their biases and attitudes, their appetite for risk and their health and longevity. So I see the future of the advisory business itself changing to align with this smart client centric view. Advisors can no longer be successful in merely managing their clients investment portfolio and running Monte Carlo simulations. If they truly want to be successful today and into the future. They have to restructure their business to address the client’s full financial lifecycle, creating a service model where the advisor is the go to person for the client for all things financially related. And to do this, I think advisors need to surround themselves with the professionals and resources to address their client’s needs. And that includes legal accounting professionals, social services, community services, grief services, having those curated professionals around them at the ready when their clients need them. Can you just imagine how that would increase client satisfaction, client loyalty, and client referrals?

Chip

Yes, I would. You know, it’s interesting, because as you as you talk through that, you know, and I listen, you know, kind of my own mom is, is in her mid 70s. And you know, we’re all luckily great, but you start to think about these things, right? And really, kind of what you’re looking at there is kind of that financial life coach. What are the things that I think I’ve traditionally seen and it’s a question I’ve dwelled on really, probably over the last year and really kind of struggled internally is that when I look at financial planning software today it’s very heavily market performance weighted right? Yet, the reality is a single health issue can blow up a financial plan in one diagnosis.

Sheryl

Yeah, I agree. A lot of financial planning software is still mired in that market performance world and to be fair said, that’s where many advisors feel most comfortable. So, because of that, we see advisors who avoid having discussions with their clients about their health and longevity. They use rules of thumb that result in inaccuracies in the plan, or they don’t bring up the topic because it’s uncomfortable to them personally. Or even worse. Some don’t even see that health care costs are an issue. But we know from multiple surveys that meeting healthcare costs is one of the top concerns of clients today, and that retirees can spend 30% or more of their retirement savings on healthcare related expenses, including out of pocket costs. So it’s no wonder that it’s the leading cause of bankruptcy and retirement and the bottom line is, clients want to talk about their health and longevity. They don’t want to avoid these subjects. And as we discussed today, we have access to really good health care expenses in longevity data, so why not incorporate that into a client’s plan. At IncomeConductor we dynamically operate that data, and it’s personalized to the client’s age, their gender, their health conditions and the state that they are going to live in, in retirement. So this gives a client a much more accurate picture of whether they can meet these expenses or not. With the money they have saved and whether they should decide to work longer or or they can retire now, I think avoiding these important planning discussions and not using good data really amounts to malpractice.

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Chip

So let me ask this question because, you know, when we look at basic investment performance data, it’s readily available, right? The health data right so you talked about IncomeConductor, having that at your fingertips. Would you draw that from how you get a hold of that data? You know, I know a buddy of mine, Rob Kirk, with Energen Data he has some of that data but that’s pulling a lot of sources together.

Sheryl

So we found a partnership with HealthyServices based outside of Boston a couple years ago, and they are the major institutional provider of longevity data, health care expense data including out of pocket, long term care data, Social Security claiming to large institutions, you know, like nationwide banks like Bank of America. So their data is very reliable. They’re experts in it. And this is the data that is used to create products and underwrite products. So why shouldn’t the retail advisor have access to that data? When they’re doing plans for their clients?

Chip

Kudos to you for digging deep and going after that, you know, from our perspective, we know how hard it can be to pull all this data together and build something you know, you need a good data lake, right? You need a good data framework.

Sheryl

Yeah. It really needs to come into the technology in such a way that that data can interact because it is inter relational. You know, longevity and health care does have an impact on when you claim Social Security. So doing social security analysis outside of your planning tool, or not incorporating this longevity and health care data. You’re gonna get a different answer than you might if all of that data is incorporated interactive.

Chip

Right, right. No, that’s a great point. That’s a great point. So I want to ask you a question. So last year, our Investment Product, Retirement and Fiduciary Roundtable, we had a case study that talked about disbursement. Right, and I find that the industry, the enterprise, wealth, industry and RIAs isn’t doing a really good job of accumulating assets. What about decumulation disbursement of assets? How, what, you know, what do you think about that, and how can we get better at that to help the client as you were talking about? A few minutes back?

Sheryl

Yeah, and to be fair, the industry has never had to focus on their clients. The accumulation phase. It wasn’t that long ago that people had pensions. So along with Social Security, they didn’t have to rely on the money they had saved to generate a reliable retirement paycheck. The advisor simply had to invest those savings and bonds in a balanced portfolio. So the client would have some emergency fund, some, you know, fun expense funds to dip into or to build a legacy to pass on to their heirs. Everything changed. With the introduction of defined contribution plans, they gave a pass to the companies first of all to shut down their pensions, and the result was that 100% of the responsibility was placed on the individual to save enough to fund their retirement. So now, we’re seeing the next generation moving into retirement, but the industry hasn’t prepared for them. You know, that different clients and most financial planning software’s use the same strategies they use for that previous generation, systematic withdrawal, Monte Carlo testing, you know, resulting in a probability of success. This approach doesn’t meet the needs of today’s retirees. Many people are moving into retirement with just their savings and Social Security. And they need new strategies to ensure they’re going to be able to meet their liabilities. Keep up with inflation. And, you know, honestly give them the peace of mind they deserve. And that’s why we developed IncomeConductor to bring that strategy to market and give people confidence that they won’t run out of money before they die.

Chip

What a thoughtful answer. Thank you. That’s terrific. All right. So we’ve talked about financial planning, you know, we’d like to keep these about 20 minutes because nobody, everybody’s attention span lasts about 20 minutes, and that’s about it might last about 10 unfortunately, but hey, that sometimes happens. So I have a question for you. You observed the industry. When you look at the wealth marketplace, both well firms and solution providers, can you share a few firms that you like and admire out there that you think are being pretty progressive and innovative? Yeah, I’d love to go beyond yours of course.

Sheryl

So going back to my earlier comment about large firms focusing more on financial planning now. I think Advisor Group is one of those firms whose executives have made a commitment not only to identifying best of breed planning technologies to support the various phases of a client’s financial lifecycle, but they’re also building out internal teams of financial planning experts to support their advisors who work with clients in each of these phases. So there are different concerns and different components that come in each phase and you kind of need to be an expert in each phase to be successful. And, you know, we believe that it’s not enough to provide great technology, advisors need training, and support to really be successful. And we take the same approach at IncomeConductor to help our advisors really become retirement income specialists and differentiate themselves on the market but moving away from, you know, the more traditional players in the space like for dealers and custodians. There are several newer firms, many of which are led by women, I’m happy to say, who are focusing on helping advisors better nod their clients that client persona that I spoke about her sort of question, were you aware, that by 2030 $30 trillion in assets will be held by single women, most of whom are widows.

Chip

That is a huge statistic. Yeah.

Sheryl

It’s so going back to the firms. Kathy Balasek, who’s founder of Grief Smart Advisor is helping advisors deepen their relationship with female clients and especially support that surviving spouse that widow and you know, what’s in it for the firm is women provide three times or or as many referrals as men. So it’s not only a smart way to retain your female clients, but it’s a great strategy to grow up. Another woman, Dr. Sarah Flaw. She’s the CEO of Data Points. She’s the daughter of Thomas Stanley, who wrote The Millionaire Next Door. So she’s been really, you know, focused on the financial arena for quite a while, but her firm provides tools for advisors that help them gain much deeper insights into client’s behavior, their biases and attitudes. And it goes far beyond the traditional risk scoring that you see with many other tools in the industry.

I’d love to learn more about that. Could you send a link for me to check that out? That’d be great. Absolutely.

Chip

Terrific. All right. So as we wrap up our podcast here, one is, we’re instituting something new. And this is in this instance, it’s going to be Cheryl’s popcorn. So it’s the last word in 60 seconds. Let’s hear your thoughts on a handful of ad hoc thoughts on things that you see are important related to wealth management today.

Sheryl

Okay, so the clock’s ticking. So having run a TAMP, first of all, it may seem a little old fashioned in this world of technology but great human to human customer service is still really important. Especially when the market is down, the quality of a firm’s Human Service Desk can be the deciding factor whether a client stays with them or goes elsewhere. providing personalized service is also key. So many advisors think scaling is synonymous with standardization. But that doesn’t mean doing the same things for every client. To me, the key to scaling is to standardize your processes, not necessarily the content, services and products you provide today’s clients really are looking for advisors who can personalize those to their individual needs. And then finally, yeah, so you know, many firms have been focusing on m&a to grow over the past few years. We’ve seen a lot of activity in the industry, and it is a quick way to grow. But if these firms don’t have strong programs in place to help advise them to succeed, once they get there, they’re going to lose them in the next you know, bidding war. So from my perspective, the retirement income market is one of the largest opportunities to come along since I’ve been in business. And firms really need to develop a solid service model in this area using a specialized technology like income conductor, in order to capture those trillions of dollars of assets moving into the accumulation, and to secure the wealth transfers that come with them.

Chip

Sure. Thank you very much for your Cheryl’s foghorn that was terrific. Those are some great thoughts. You went a little bit over a minute but that’s alright, we can look back. Hi, I’m so happy you chose to spend a few minutes with us today and having a conversation. Thank you for joining us.

Sheryl

Oh, it’s been a true pleasure to thank you.

We hope you enjoyed the latest episode of the Beacon Flash Podcast. We’re always working to bring you the latest insights and trends of the industry. To stay up to date. Subscribe to our podcast on Apple podcasts, Spotify, or wherever you listen to podcasts. And don’t forget to visit our website at www.beaconestrategiesllc.com To learn more about our consulting services and the Beacon Roundtable offerings.