Most of us over the age of 40 can probably remember a time where RadioShack played a significant role in bringing the latest in electronic goods to consumers. Emerging from humble beginnings as a specialty retailer for radio enthusiasts and hobbyists, RadioShack grew into the leading merchant of electronics in the 1970s and early 1980s. It seemed like RadioShack was poised to rule the electronics marketplace for decades to come with the success of their CB radio offerings in the 1970s and their introduction of personal computers in the late 1970s and early 1980s. I still remember the excitement I experienced as a young boy taking shopping trips with my father to the RadioShack and Hobby Center stores at the Southland Shopping Center.
Now that the iconic retailer is navigating bankruptcy and plans to close 1,700 stores while selling another 2,400 stores to hedge fund Standard General, it doesn’t seem possible that RadioShack’s TRS-80 computer once outsold Apple’s offerings in the early 1980s. Over time RadioShack ‘s computer lineup became obsolete, losing market share to PC makers like IBM, Compaq, Dell and Apple before RadioShack phased out its computer business in 1993. Subsequent strategic missteps included forays into concept stores and mobile phones that have left RadioShack today with a network of 4,000-plus stores that the company cannot afford, no clear strategic direction, and no rescue plan – save bankruptcy.
RadioShack’s failure to adapt to the changing marketplace can serve as an important lesson to all of us in the financial planning industry, as well as the clients that we serve. Let’s look first at how the retirement landscape is changing. It is no secret that the burden of securing a comfortable retirement is falling more squarely on the shoulders of individuals than ever before. Pension plans have all but vanished except for those employed in the public sector. But recent and impending pension-funding crises in states like Illinois, New Jersey and California and cities like Detroit should serve as a warning that retirees may not receive all the pension benefits promised to them. Social Security, the default “pension” plan for the private sector, faces its own long-term financial challenges as well. And few politicians at the national level seem eager to champion the politically unpopular moves necessary to shore up the long-term viability of the plan.
Americans must adapt to the changing retirement landscape by 1) preparing to work longer than previous generations, 2) adapting a phased-retirement approach, 3) saving and investing more in preparation for retirement, and/or 4) seeking out the planning expertise of trusted financial and retirement planners. With medical advances making thirty and even forty-year retirements a reality for many Americans, the days of retirees happily rolling retirement savings from one CD or municipal bond to another are long gone. Reaching and maintaining a comfortable retirement today requires a tremendous amount of planning that was not necessary twenty or thirty years ago. Americans who fail to adapt to the new retirement reality may find themselves in a predicament similar to RadioShack today, with savings too scarce, and Social Security income benefits too meager to live the comfortable retirement they envisioned.
And those of us in the financial and retirement planning industry must adapt our business models to the new realities of retirement. There will be a considerable future upheaval in our industry as advisors and planners will be expected to provide guidance on a wider array of retirees’ concerns like Social Security claiming strategies, retirement income strategies, and navigating the challenges of healthcare. Gone are the halcyon days where stockbrokers merely had to pick the best stocks, bonds and mutual funds for their clients. Investment management is quickly becoming a commoditized business, and advisors had better quickly adapt to a more robust planning practice or find a new profession.
Compensation models will also change dramatically as consumers clamor for more transparency and alternative compensation models. Commissions earned for products sold have disappeared in other parts of the world, and it a foregone conclusion that the same will occur here in the United States in the future. Advisory fee models will also morph and change. The financial planning industry must also solve the dilemma of how to profitably deliver financial planning advice to individuals with lower asset levels and modest incomes. Finally, a uniform standard of client care must be adopted so that all financial advisors are held to the highest standards. This means that banks and brokerage firms must adopt the same fiduciary standard that Registered Investment Advisors use in delivering planning advice today.
The RadioShack story did not have to play out this way, and with proper planning your retirement journey need not play out in a similar fashion.