Financial planning sees what it wants to see.
Most advisers focus on the low possibility of a temporary income loss caused by illness or accident, and what can be done about it. Few focus on the high probability of a permanent income loss caused by technological change and redundant or inadequate skill levels, and what can be done about it.
It’s a pity, because the adviser who competently charts this new territory will have a very successful practice. It’s not a difficult place to go to. It’s a garden of low hanging fruit. Your clients are concerned about their financial futures, and want to know how they can do things better. How to make their incomes higher, longer and more secure.
It behoves you to challenge their financial status quo, their financial complacency, to ask “what must you do now to ensure your future income is maximized, in terms of both size and stability?”. Your experience, your prescience, your knowledge and your professionalism focus on what is best for your client.
You are, of course, a financial planner. You are supposed to plan your clients’ financial futures.
That includes the good and the bad.
The conversation can be disturbing. Clients have an incredible capacity to ignore the obvious and stay in their comfort zones. For most clients the proverbial elephants in the corner, the razor rocks set to dash their financial ship to pieces, are looming leaps in artificial intelligence and its close cousin globalization.
What does your client do for a crust?
No occupation is safe.
Is she a warehouse manager? A logistics and transport guy? China, not known for its high labor costs, already has mega-warehouses 100% run by robots. There is not a human in the place. It’s a cement and steel, product shifting algorithm run monster, and it will be here soon. Think Amazon in Dandenong. For every new job created at least two will be lost elsewhere.
Is he a builder? A tradie? Off-site pre-fab techniques are game changers. Entire medical centres are being built in China, shipped to Australia and assembled in a few days by low-skilled-gig-economy teams of transient-travelling-piece-paid workers. 3D printers are creating whole houses without significant human input. The new building construction processes don’t need militant striking unionists.
Is she a barrister? Junior lawyers once cut their teeth on low level repetitious tasks. Not anymore. These are done overnight by silicon chips and para-legal teams based in Bangalore. The 38 Australian law schools means supply increasingly exceeds demand and the price of legal labor is falling as legal services become fungible commoditised products. Don’t believe AI can beat judgment, wise counsel and experience? It can. Patent software predicts the outcome of patent disputes more accurately than the best grey-haired legal eagles. The software knows nothing about the law, and has no intuition (at least as we understand intuition). This does not matter because incredibly large data banks and processing power win hands down when it comes to pattern recognition based patent predictions.
Is he a barrista? The blind tasting coffee competitions are all won by machines these days. No human gets close. Its a simple formula, and the key is the water temperature. No skill is required. Its basic physics, programmable and predictable. McDonalds does it well.
Is he an accountant? The cloud based accounting ship has already left port. It’s called Xero, and the number crunchers sailing it are based in Vietnam, the Phillippines and India. Most have masters degrees from UK universities. Its impossible to compete with their hourly rate.
Is she a call centre supervisor? Not for long. Soon we’ll be talking to AI bots, with perfect diction and perfect politeness. You can choose the accent, and even the language, you prefer.
No need to mention what’s happening to taxi, bus and truck drivers. Some say that alone will knock out up to 20% of all jobs as we know them.
One can go on. Few occupations are not affected. Some will survive in name, but they will be transformed in substance, and millions (yes, millions) will be left behind. Deloittes report as many as 40% of occupations we recognize today will disappear in the next 15 years. Others say it’s not so much the jobs that will go, as it is certain tasks within jobs; a job after all is no more than the sum of its component tasks. So perhaps 20% of occupations will disappear, but virtually all the other 80% will be significantly affected.
In 2032 one diagnostic opthomologist, armed with the most brilliant eye machine imaginable, will do the work of ten optometrists today. And with much greater accuracy. No need to attend the surgery: just take an Eye-Selfie using a special Eye-Phone App. Spec Savers is gone: your new glasses are delivered the same day by an Amazon drone. Good news if you wear specs. Not such good news if your client used to be an optometrist. Or if your client used to work in retail sales.
Let’s consider the chronic sexism and ageism in the workplace problem. It’s illegal, and everywhere. Men, and particularly women, are forced out of the workplace as they age. Don’t believe me? Speak to them. They will tell you what it’s like to have 100 resumes go unanswered because the algorithm says no to anyone without a masters degree born before 1970.
(Did I mention 70% of resumes submitted on line are now sorted by machines and never seen by a human eye? There are a lot of redundant human resource specialists out there. They are not needed now we have LinkedIn)
What about all the new jobs? The Luddites were wrong. Progress creates; it does not destroy. Smith, Malthus, Keynes and Friedman all said so. There must be new, better, jobs. Sorry. This time its different. There will not be more new jobs. This time there will be fewer jobs. Even the whiter collars are at risk. Cognitive skills will not save your client. The machines can think, and Moore’s law means they are thinking more and more. Definitely more than your client can.
And the few new jobs will be temporary. The so called flexible or gig economy is a scary place. Short term contracts, some just for a few hours. No tenure. The Uber driver gets sent home if its quiet on the street. The individual bears the commercial risk, not the enterprise. Without tenure, without security, its impossible to get ahead financially.
The average home loan in many Sydney suburbs is approaching $1,000,000. Becoming unemployed or worse, unemployable, is a disaster. Think debilitating stress, depression, health issues, relationship break down and family disruption. The consequences damn the generations.
Intergenerational redundancy will be the reality. Elon Musk foresees mass unemployment and the need for a universal income. Of course Australia already has that. We call it the dole.
Let’s throw in the longevity problem. Most of your clients will live longer than they expect. This means many will be redundant for longer. The financial opportunity cost is huge. But what about the personal cost. The loss of dignity; self esteem and social status? How does the 45 year old on the workplace scrap heap feel about her future?
Now the under-superannuation problem. Most Australians have nowhere near enough. The average for women is less than $100,000, and the average for men is less than $200,000. This means most will live out their old age on a meagre and ever decreasing fortnightly pension.
So, what is the real risk faced by your 30-year-old clients with three young children examining home ownership strategies? Your 40-year-old clients struggling with the school fees? Your 50-year-old clients dreaming of life as grey nomads?
Let’s go back to the beginning?
Have I made my case? Do you see your clients’ problem?
Yes, your clients need to be concerned about the possibility of illness and disability. And you can help them there. Insurance products are great. No question. But the greater concern is the probability of their occupational redundancy, their technological use by date expiring decades before their biological use by date.
Take your clients there. Have the hard conversation. Alert them. Inform them. Educate them. Encourage them.
Advise your clients now to consider what they can do to avoid this future financial fate.
Recommend they buy or create a new business. When people stick to what they know owning a business is usually a good move. Certainly selling CGT-free goodwill is the fastest way to wealth I know of.
Recommend they up-grade their skills and their resume by adding a new certificate, diploma or degree. Australia is the educational Lucky Country. Everyone faces quality low cost training opportunities, starting at your local TAFE and going up from there.
Recommend they focus on computer literacy and competency. Just go on line and learn. Its all there.
Recommend they study trends in their industry to get ahead of the curve. Network. Attend conferences and seminars. Read. Watch what is happening overseas.
Recommend they market themselves more actively within their employer. Within their industry? Should they actively network? Build a bridge they may one day need?
Recommend they take on more responsibility. Make themselves less dispensable? No employer gets annoyed when an employee asks for more responsibility. Its a cup of coffee to make a case for more work and more challenging work. Make sure you are the last person they want to lose.
Recommend they move to a new employer, or a new team or business group with their current employer, to diversify their skill base and acquire new knowledge. Some people have ten years of work experience. Others have one year of work experience times ten. When your learning curve flattens its time to find another one.
Recommend they move to a new industry now before the old one disappears. Do your skills transfer readily? Or are they industry specific? If they are industry specific you have a problem you must fix.
Recommend they start preparing for a new career now. Should the 50 year old scientist start a part-time diploma of education, to launch her new career as a maths teacher at age 55?
Recommend the family spend less and save more, via a tax effective interest offset account or tax deductible super contributions. This is the hard one. Few will forgo current consumption. They are not wired to do this. Its hard to persuade people to save. Most don’t, and won’t.
Recommend mum return to work early, and maintain and increase her work qualifications, to hedge against dad being obsolete by 2025. Mum’s biggest mistake may be to stay out of the workforce. Short term decisions have long term repercussions. If mum is out of the workforce now she needs a re-entry plan. There is a huge financial advantage in a working mum. Don’t forget mum will live to nearly age 90. That’s a long time to be out of the workforce.
I know none of this is easy. I know clients do not want to know. But it’s where you have to go.
But this is what real financial planning is about, and it is what real financial planners do.