Market Ethics and the Retiree Market

By: Kaplan Financial Education
March 15, 2019
Insurance agent meeting with retiree clients

While proper market conduct is an essential part of good business with any client, it is especially important in the retiree market. Financial practitioners who work in this market must be sensitive to the distinctive issues and challenges confronting the retiree client. Still, while retirees require additional attention to market conduct, the underlying basis is no different here than with younger clients.

Dealing with personal financial affairs can be an intimidating ordeal for almost anyone. For many retirees, especially widows who might have been removed from day-to-day financial decision-making earlier in life, the need to make important financial decisions can be terrifying. In addition, in their minds, there is a dizzying new array of insurance products to consider, including  long-term care and  Medicare supplement plans.

At first, the signs are hardly detectable. Indeed, a decline in decision-making capacity can be masked by other outward signs of confidence. Rare is the retiree whose opinions and convictions about family and social issues don’t intensify with age. But over time, this confidence can weaken.

While faith in their general wisdom may strengthen, the same cannot always be said of the confidence retirees feel regarding financial matters. Even those who were responsible for the family’s budget during the growing years may find it increasingly difficult to keep abreast of changing financial developments later in life, especially those dealing with insurance matters and estate transfers.

A wide assortment of new issues arises after retirement that can cause retirees to become at once more cautious and more deserving of their financial practitioner’s care and attention to suitability and disclosure matters. There are a number of challenges that can diminish the retiree’s capacity for keeping up with their changing personal finances.

Compliance Issues: Five Challenges for Retirees

Some changes are more common than others, but all have the same end result—they affect the way older Americans approach financial decision making. A closer look at each will illustrate why it is so important to use extra care when conducting business in the retiree market. These five challenges include the following:

  1. A transition in investment perspective from asset accumulation to asset distribution and preservation
  2. A natural shift in risk tolerance toward a more conservative investment position
  3. Changing personal risks that increase the need for new financial products and diminish the need for others
  4. Increased product complexity that many consumers of all ages find hard to grasp
  5. Potentially reduced mental acuity or a growing unease with technical matters that can slow down the decision-making process and may even raise questions about buyer competence

Challenge 1: Transition from Asset Accumulation to Asset Distribution

After spending years worrying about saving for retirement, it can be difficult for some retirees to change their mindset and accept the need for distributing those assets.

Decisions made with respect to qualified plan distributions and personal savings will affect retirement income security, possibly for years to come, making many retirees nervous about decision making.

It is especially important for financial practitioners serving the retiree market to thoroughly understand the rules and requirements pertaining to qualified plan distributions before offering advice in that crucial area.

Challenge 2: A Turn Toward Conservatism

Financial practitioners are beginning to advise their retiree clients to accept more market risk than they have in the past. Nonetheless, the natural swing toward conservatism that in part defines the transition to retirement age cannot be denied. Practitioners who are struggling with this issue with a client will find it easier to understand the client’s mind-set by realizing that the money in question represents, to the client, the difference between financial security and poverty.

This change in financial temperament translates into an understandable fear of making a bad financial decision that might adversely affect the retiree’s financial security or legacy by reducing assets that are earmarked for retirement income or bequest purposes. When guiding retiree citizens in making investment decisions, financial representatives must understand and be sensitive to the client’s perceived need to protect asset values.

Challenge 3: Changing Insurance Needs

Many retirees are well aware of the changing risks they face with advancing age. For example, long-term medical and nursing care moves from the wings to center stage in the theater of personal risks, while disability-related loss of income retreats. Knowing they face new risks and knowing what to do about them are two different things.

Statistically, the average new retiree today can expect two full decades or more of life beyond age 65. Indeed, planning to meet the costs of a long and active retirement should be at the top of every retiree client’s list of financial priorities. As with any statistical average, some individuals must fall below the mean, which in this case entails long-term medical and nursing care or an early death.

Prudent financial planning calls for strategies that presume the client will live a long, healthy, and active life but prepare them for the worst. The probability of succumbing to a debilitating disease requiring extensive medical and long-term care, though far from certain, is too great to ignore.

Senior Americans from all walks of life are aware of the new risks that arise with age. Not every product is well suited for every individual. The need for long-term care insurance, for example, is determined in large measure by the client’s income and net worth. The unethical financial representative who is motivated solely by sales volume might easily abuse the trust that elder clients frequently place in their financial advisors by recommending products that might not be in the client’s best interest, or suggesting benefit levels that exceed the client’s needs.

Challenge 4: Increased Product Complexity

In response to the burgeoning retiree population, the financial services industry has developed new products that are geared to that age group’s particular needs. These new products tend to be complicated. Second-to-die life insurance, long-term care insurance, and the variety of Medicare programs (all of which are directed to the retiree market), serve a valuable role in providing financial security—but each is subject to misunderstanding by the general public, especially retirees. Likewise, qualified plan distribution strategies can be painfully confusing to lay people. All of this requires financial practitioners to exercise even more care when educating their retiree clients.

It is important for the financial practitioner to remain focused on the need for full and fair disclosure when recommending or explaining a product. It might be easy to help a retiree client understand a complex product by referring to it as something that resembles another better-understood concept, but care must be taken to avoid confusing the client on this point. (The classic example of oversimplification is the illegal use of the term tax-free mutual fund to describe a variable contract.)

When trying to simplify a concept to make it clear, practitioners must always remember to clearly identify the type of product being recommended. Simplifying a product’s explanation is never a valid excuse for misleading a prospective client about the product’s true nature.

Challenge 5: The Senior’s Reduced Mental Acuity

This common challenge facing the senior client—reduced mental acuity—may be the most sensitive issue of all, and certainly is one of the most distressing aspects of aging. Besides making it difficult for seniors to react promptly to changing financial circumstances, a diminished ability or willingness to comprehend complex issues is a frustrating reminder of the toll exacted by the aging process. One only has to look at an aging parent or grandparent to realize the extent to which the aging process can beat down the will, if not the ability, to study a financial situation and make a decision.

The loss of decision-making capacity exposes an individual to a heightened risk of ill-informed and ill-advised buying decisions. The fear of making a bad financial decision at once makes older Americans especially wary of new ideas involving finances, yet willing to let advisors they trust make financial decisions for them.

Why do Insurance Agents Fail?

Serving Retirees Better

Financial security in retirement involves other important issues besides money; so much so that attention to these nonfinancial issues cannot be ignored by the professional financial practitioner.

For example, a client who has no hobbies or interests other than work may experience a feeling of uselessness after retirement. The practitioner who can suggest worthwhile activities, such as becoming involved in a civic or charitable organization, may provide an enhancement to a senior client’s retirement. The most successful retirement planners strive to meet their clients’ financial, personal, and emotional needs to ensure an enriching, as well as financially secure, retirement.

The following are some ideas that financial practitioners can use to better serve retiree clients:

  • Always use a fact finder. A fact finder becomes an important record of the information on the basis of which suitability is ultimately determined.
  • Put everything in writing. This advice is important in all sales transactions, but especially in transactions involving senior markets. The client who understands the reason for buying a product today may forget the reason next year; committing the problem and recommended solution to paper (ideally, signed by the client) is the best way for the financial practitioner to defend against memory loss.
  • Encourage the participation of others close to the client. Retiree clients are more likely than their younger counterparts to seek the advice of trusted friends and family members before making a financial decision. If it is apparent that a client places a lot of importance on their son’s or daughter’s opinion regarding financial matters; for example, the financial practitioner should suggest that the person be brought into the presentation. Advice like this is a sure way of helping to build a client’s trust and respect.
  • Expect a shift toward conservatism. The desire to preserve retirement capital exerts a strong influence on a person’s tolerance for investment risk. Before ideas can be explored to accept higher market risk, a prospective retiree client needs to see that the financial practitioner understands the client’s concern about capital preservation.
  • Use plenty of third-party material. In their effort to make informed financial decisions, senior clients typically want more third-party material (brochures, pamphlets, copies of relevant articles, etc.) than younger clients.
  • Be patient. As with any client, be patient. Be ready to repeat key points several times if necessary.


Want more information on Senior Needs Planning? Take our full Insurance Continuing Education course titled Senior Needs Planning, 5th Edition, which covers the following topics:
  • The Need for Retirement Planning
  • Retirement Risk Management Strategies
  • Inflation and Retirement
  • Retirement Plan Distributions
  • Social Security
  • Analyzing Retirement Income Needs
  • Wealth Accumulation and Market Conduct and Ethics
  • Investing Retirement Assets
  • The Role of Market Conduct and Ethics in the Retiree Market