Advisors urged to brush up on demographics

(May 31, 2005) Changing demographics will have a long-term effect on the practices of financial advisors, experts say, and must be properly understood for professional survival.

Demographics are “…one of the more important aspects of retirement planning,” argued Carl Haub, senior demographer at the Washington, D.C.-based Population Research Bureau during a recent National Press Foundation meeting, also held in Washington.

Haub defined demographics as the study of a population’s age structure, especially the relationship between age groups and their growth or shrinkage. A constant structure of young, middle-aged and senior citizens ensures that needs remain constant as long as the number of individuals also remains unchanged.

In a retirement planning context, constant structure means that the proportion of income-earning individuals “paying into the system” relative to youths and seniors remains steady and predictable. A bulge in the age structure produces increased tax money coming into government coffers — with an accompanying increase in services demanded while a contraction causes a decrease in incoming funds.

Currently, the most important demographic issue centres, perhaps not surprisingly, around baby boomers. “Every trend you can imagine is ascribed to the baby boom,” Haub said, defining it as a post-depression boom instead of the more frequent characterization as a post Second World War boom.

Haub believes the boomer trend peaked in the early 1960s. The fertility rate declined in the next decade, with many couples concluding that two incomes were necessary, he said. The American fertility rate fell to 1.7 children per couple but then stabilized at two by 1990, meaning that population stays constant except for the effects of immigration and longer life expectancies. The Canadian rate is estimated at around 1.5.

That equation, when combined with other projections, leads to the bureau’s estimate of an older and expanding Canadian population in the future, bringing with it implications for any professional group — advisors included — whose livelihood depends on effectively serving that group.

As the population ages, we will increasingly face problems that accompany advancing years, suggests Nathalie Tremblay, health products manager at Desjardins Financial Security. For example, a recent Desjardins-sponsored study undertaken by Toronto-based Baycrest Centre for Geriatric Care indicates that one in three individuals over 85 years of age suffers from dementia.

Increasing life expectancy and the prospect of dementia and other infirmities will become problematic given the shrinking family support systems triggered by the declining birth rate, she says. “Who will take care of them (when) you have 1.5 children per woman?”

That equation gives an advisor a compelling case for long-term care insurance, she said. Long-term care insurance policy provides benefits for services needed when the insured individual is diagnosed with a debilitating illness or injury and can’t perform at least two activities of daily living, such as eating, bathing or dressing.

Eligible services can include health aid fees, home management, home-based hospice/palliative care, services of a nurse and nursing-home care.

The implications for other insurance products are less clear. If insurers and life-licensed advisors succeed in convincing increasing numbers of clients of the estate-planning and asset-shielding value of other products, such as universal life and whole life, they can hope for sustained sales of these products. If not, sales could drop off.

Even less clear is the extent to which clients will accept the need to invest in capital protected products, although an increasing market is a reasonable supposition.

More unpredictable is the effect that changing demographics will have on the actual ranks of life-licensed advisors. Insurers know that they have a win-win situation as their boomer advisors sell to their increasingly wealthy boomer contemporaries but admit privately that have not begun serious work on creating a whole new generation of life insurance brokers.

Al Emid is a Toronto-based freelance writer

(05/31/05)