You're listening to “Financial Advisor Marketing”—the best show on the planet for financial advisors who want to get more clients, without all the stress. You're about to get the real scoop on everything from lead generation to closing the deal.
James is the founder of TheAdvisorCoach.com, where you can find an entire suite of products designed to help financial advisors grow their businesses more rapidly than ever before. Now, here is your host, James Pollard.
James: Hey, welcome to the Financial Advisor Marketing podcast. If you're new here, thank you for tuning in. My name is James Pollard. I help financial advisors get more clients, and I'm pretty darn good at it, if I do say so myself. This podcast has grown a lot in the past year. I'm thankful that people are listening to me and, hopefully, my gratitude comes out in these episodes. I know I don't say it enough, but I am thankful for you, if you are listening.
“Why Most People Retire Broke” might seem like a strange episode topic for a marketing podcast, and it is, but I want to talk about it because of the reason why it ties directly into a way you can grow your business and get more clients. [01:11.0]
To kick things off, I want to share some scary statistics with you. These statistics come from a retirement survey from Ramsey Solutions. I'm not exactly a Dave Ramsey fanboy, but I appreciate the hard work he does in conducting studies and figuring out what real millionaires do versus what they don't do. I appreciate anyone who puts in the work, who strives to give people real data.
As a side note, the biggest beef I have with the whole Dave Ramsey approach with debt-free and the baby steps and all that is that it's fine for getting to $1 million, $2 million or $3 million, but if your goal is to get to $10 million and beyond, you need to have different strategies, like leverage and scale, and by leverage, I don't mean debt. I mean getting disproportionate output from your input, because even if you have 30 years and an 8% average rate of return, you still need to invest $82,000 per year to get to $10 million. [02:01.7]
It's not impossible, but the average person who has $10 million or more, generally, did not get there by investing $82,000 per year into the stock market. Let's just be real. Let me just call it like I see it. Their wealth-creation event was something else. They may be maintaining or even growing their wealth in the stock market, but they certainly did not create their wealth there. Not at that level, not at $10 million, $20 million, $30 million, $40 million, $50 million.
Anyway, here are the scary statistics.
Only 58% of Americans are actively saving for retirement, and that breaks my heart, but that's what it is.
48% of Americans have less than $10,000 saved for retirement, and what's even worse is that $10,000 invested for 30 years at an 8% annual rate of return is only $100,000. That's not even enough to cover medical care in retirement, which, depending on the study you read, is around a quarter mil alone. [02:58.1]
Only one in 10 Americans are saving 15% or more of their monthly income toward retirement—and I have to be real with you again here. I think that's low. I personally think your goal needs to be 40% or more. Some people will gasp at that and say, “Huh, 40%, I could never. How do people save that much?” But I'm just calling it like I see it, again. If you examine how much the wealthiest Americans save per month, you will see it's around 40%.
Some people might think, Yeah, that's because they have more money to save, and I'm not going to sit here and argue the chicken or the egg problem with you. I'm just telling you, if you're interested in achieving financial independence, preferably earlier rather than later, you need to bump those numbers up. Those are rookie numbers.
Only 36% of Americans strongly agree or agree that they know how much money they'll need to retire. This is really scary because if you don't know where you're going, any road will get you there, and that's what people are doing. They're just taking any road. How in the world can you hit a goal if you don't even know what the goal is? [04:02.2]
What's sad is that there are financial advisors out there who are willing to help people come up with this number to set the goal, to work out a plan to achieve it, and these financial advisors get ignored, and my heart breaks for these financial advisors as well because they genuinely want to help people. They genuinely want to make sure that people experience greater financial peace, greater financial security, and people just turn it away.
A majority of Americans are learning about retirement by word of mouth. Yikes. If you don't see the problem with this, let me explain it to you. You see, if most people are broke and most people are learning through word of mouth, all that does is create a big cesspool of broke.
I don't want to listen to the person who has less than $10,000 saved for retirement. I want to listen to someone who is worth following. It's okay to be a student, as long as you admit you are a student. For example, I'm doing monthly Bible meetings with financial advisors, and I fully admit I am a student. I am not the expert. I'm not a Bible scholar. I'm just a regular guy trying to apply its wisdom. [05:03.3]
I encourage people to read ancient texts like meditations, the Stoic teachings, to read stuff like The Prince by Machiavelli. Read these texts that have endured time, and, yes, that includes the Bible. I'm trying to learn more about it. There's no need for me to posture like I know more than I actually do because that would prohibit me from learning more.
I'm not interested in looking cool. I'm not interested in being on a soapbox. I'm interested in attaining knowledge and using that knowledge to better my life. If I'm someone who doesn't have a clue about retirement planning, I'm not going to get my advice from someone else who doesn't have a clue about retirement planning.
Most people retire broke. Why? What is the real root underlying cause for this phenomenon? I think there are a variety of reasons, but the one I want to discuss on this podcast episode is something called the “projection bias.” The projection bias, I'll get the actual definition here for you—it is a self-forecasting error where we overestimate how much our future selves will share the same beliefs. [06:06.4]
People tend to assume that their taste or preferences will stay the same over time. People who rocked a mullet in the 1990s might have believed it was going to be a sexy hairstyle for the rest of their lives, and they were wrong. Here's a simple psychological fact. We are typically in a different state when making choices than we are when we experience the result of those choices.
Imagine you show up to a restaurant and you're really hungry. This restaurant is famous for its chocolate soufflé, so you order it ahead of time because it takes about 45 minutes to make. You're really looking forward to the soufflé, because, again, you're famished. You've been imagining it for the past few hours. But then you eat your meal and your psychological state changes. You're not as hungry anymore, so when this soufflé comes, you don't enjoy it nearly as much as you thought you would. [06:53.5]
Now let's apply this to retirement planning. When people are in their twenties and thirties, they generally don't have the same sense of urgency around retirement planning as someone who is a few years out of retirement or a few years away from retirement. The projection bias leads the younger people to believe that they will always have this lackadaisical sense of calm around retirement. They believe that everything will work out and they'll be fine because they've got plenty of time. But along the way, as they get closer and closer and closer to retirement, the psychological state changes and they regret their decisions.
I wish more people had a bigger sense of urgency when seeking out financial advice. I understand the value that financial advisors bring to the table. I wish more people saw it, and since this is the Financial Advisor Marketing podcast, I’ll tie it back to marketing. [07:42.5]
Hey, financial advisors. If you'd like even more help building your business, I invite you to subscribe to James' monthly paper-and-ink newsletter, “The James Pollard Inner Circle”. When you join today, you'll get more than $1,000 worth of bonuses, including exclusive interviews that aren't available anywhere else. Head on over to TheAdvisorCoach.com/coaching to learn more.
Financial advisors, they get bitten the butt by the projection bias when they think that things will always be about the same for them. If times are good, they think times will be better or good for longer than they are. If times are bad, they think times will be worse or bad for longer than they are, too. They project their current reality out longer than necessary.
It's important to know that things change not only your emotional state, but the actual reality of your business. If you're running online ads, rules can change. If you get a lot of organic traffic from social media, algorithms can change. If you're getting traffic from search engines, search engines can change how they display results. Again, things can change for better and for worse.
The projection bias doesn't have to be negative, but it's typically negative when it involves retirement planning because people put it off. They don't have that sense of urgency. The projection bias is the tendency to project current preferences into the future as if future taste will match our current ones. [09:05.1]
Sometimes financial advisors outgrow the way they do business or their tastes change. For example, financial advisors might start their businesses embracing the hustle culture and they might be willing to work 80 hours per week, but once they begin making decent money, they might want to slow down, and that might be difficult, because their previous taste locked their current reality in and they can't really escape. Especially if they've trained clients to expect a certain level of service, and if that service requires more hands on deck, then either you've got to be there or you've got to hire people, and if you hire people, that's an investment into your business, but it could also be a cost if you make a bad hire and then it just goes on and on and on and on.
Be especially careful if you think you are too smart for the projection bias. Multiple studies have been done on this, and it's a part of human psychology. We can't get rid of it. Even something as simple as the weather can cause us to make long-lasting, difficult-to-reverse situations. [10:02.6]
For example, people are more likely to buy convertibles when it's warm and sunny, even if they live in Michigan or Minnesota. If it's snowy, people are more likely to buy a four-wheel drive vehicle, and when it's cold, they're more likely to buy a black car or a black truck. Studies have also found that buyers pay more for homes with a swimming pool when it's hot than when it's cold. The smart people are buying houses. Smart people are buying cars. Smart people are doing this. They're still being affected by these factors. Try to slow down and examine your decisions to see if there's anything, anything at all, influencing your current emotional state.
I've heard terrifying stories of financial advisors hiring expensive marketing agencies because their emotional state sabotaged them. They got really excited. They saw the sales pitch. They were like, Yeah, this is going to be great, I'm just going to jump in. I'm going to commit to tens of thousands of dollars per year. Then their state changes. Reality sinks in and they don't want to do it anymore, and then they're stuck in this contract and it is just not good. [11:05.8]
I've also heard from financial advisors who have been burned several times by lead-generation companies because they acted on an emotional impulse and they projected that buying leads would be a good idea one year, two years, and three years into the future. If you have a broken leg, your current state is like, Holy crap, I’ve got a broken leg, I should probably put a cast on this thing. But having a cast on your leg three years from now, five years from now, 10 years from now, is probably not a good idea.
I cannot stress this enough. Your future needs will not be the same as your present needs. It is very difficult to accurately predict our needs in the future because exogenous factors, things outside our control, can influence our decision making in the present. [11:52.7]
Another famous study is one called the Catalog Study. Researchers wanted to know if the weather affected people's decisions to buy winter coats and whether people kept them. Surprisingly, the weather affected both. People were more likely to purchase a coat on colder days. This is just like the convertible and four-wheel drive example I gave earlier. However, shoppers were also more likely to return their coats if the weather was 30 degrees warmer on the return date than it was on the order date. It's as if one unusually warm day got people to think, Ah, I don't need this coat anymore. We'll never have cold weather ever again. It sounds stupid when you say it like that, but that is kind of how people act.
I saw this phenomenon a lot this year. Searches for terms like “financial advisor near me” hit an all-time high in January 2022, and by the time you listen to this, there might be another all-time high, who knows? But there was an all-time high in January. Searches for financial planner hit an all-time high in July, and this year's economic conditions created a tsunami of people flooding into financial advisors’ websites, social media pages, and email inboxes. [13:01.3]
Some financial advisors were lulled into a false sense of security, and they projected that this behavior would last longer or that it will continue far into the future. Warren Buffett famously said, “Only when the tide goes out do you discover who's been swimming naked.” I told financial advisors that the tide will eventually go out, and I wanted them to be ready when it happened. Part of being ready meant taking steps to avoid the projection bias.
People also have the projection bias when investing in the stock market. Sometimes people believe the good times will last forever. Other times they believe the bad times will last forever, just like financial advisors believe that increased demand will last a lot longer than it actually will or has lasted. They don't understand the concept of reversion to the mean.
We have averages for everything in life. We have an average diet, so if we eat healthy food, we feel better than average. If we eat junk food, we feel worse than average. We have averages for our incomes. If there's a dip, we work hard to get it back to the average. There's a sense of urgency when we're below the average. If we typically grow 20% per year and we're on track to stay flat for the year, we start feeling uncomfortable. We think a little harder. We work a little harder. We take a little more action. [14:14.5]
Notice that a sense of urgency comes when people are below their averages in order to get them back to the mean. This is reversion to the mean, but the same sense of urgency doesn't exist as often when people are prospering and existing above their averages. That is the projection bias at work. People are being influenced by their current state. When people are operating above their averages, there's a tendency to project that state into the future.
However, life operates in cycles, not in a linear fashion. The stock market does not go up 10% or whatever every single year in a linear way. As I'm recording this, the S&P 500 is down 23% year to date, but it also made 26.89% last year, 16.26% the year before, and 28.88% the year before that, and in 2018, it lost 6.24%, so it's all over the place. There are cycles, just like with everything in life. [15:08.6]
The key is, if you want to grow, to anticipate your future state and serve your future self, not your current self. If you can do that, you will level up in your life, and you do that by fighting the projection bias.
But enough about that. I want to end this podcast by switching gears a little bit and sharing something else with you and I think this can help you, too. In 2007, the American Academy of Pediatrics released a statement on how child-directed exploratory play is far superior to adult-guided activity. Children who were allowed to explore the world around them and use their senses developed better emotional, social, and mental agility than other forms of play.
Exploratory play, it includes things like painting, drawing, making music, with no help from Mom or Dad. Nobody is helping the child here. The child is playing on his or her own. It's messy. It's exciting. It's unpredictable, and it's a fantastic way to encourage development in children. [16:07.3]
But it's not limited to children because financial advisors should continue to explore, too. Every so often I’ll hear from a financial advisor who whines and screams, “Just show me what to do.” These sorts of advisors must have had lots of adult-guided play as children, so they've been conditioned to expect things in neat step-by-step packages. But the real world doesn't work that way. You have to learn by doing. You have to get out there and figure things out for yourself.
Are there timeless principles that can help you along the way? Sure. Can you do some introspection to understand yourself so you have a stronger foundation? Absolutely. But you should also explore. You should use your senses to see what's going on in the world, to gain knowledge, to become a better person, because remember, success can never be given. It must be earned.
And with that, I’ll catch you next week. [16:58.0]
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