Believe it or not, there was once a time when employees who worked at a company for 50 years would receive a gold watch upon retirement. Not so many gold watches given out these days. People are far more likely to hop around from gig to gig, and that trend is only intensifying.
In the future, most of our careers will be episodic and multi-faceted in nature, and that eventuality has big implications for financial advisors who want their practices to prosper in the future. At least, that’s the prediction I made to a group of them who convened in Boston last week for the Fidelity Custody & Clearing’s regional Inside Track event, held at the Seaport Hotel.
Experts say that episodic careers will consist of a mix of full-time salaried employment, time off for education, family leave and personal fulfillment and self-employment. My message to advisors is to adapt now or risk irrelevance. In my opinion, the days when a financial plan could be modeled based on a steady salary growth rate until retirement are over.
At Fidelity Labs, we research and prototype solutions designed for the future, including the future of work. In 2018, we saw the self-employment trend gaining steam and created bSolo, a site to help independent workers thrive in the new world of work. Here are a few of the learnings and predictions I shared at Inside Track.
Freedom and flexibility
Since introducing bSolo, we’ve interacted with hundreds of companies and thousands of American workers. Our experience with soloists (our name for self-employed workers) signals that they are in the vanguard of the movement towards episodic work, designing their income-generating activities with optimal freedom and flexibility in mind. This flexibility allows them to earn money while bootstrapping a start-up or designing their productive time around the demands of caregiving.
To other soloists, flexibility is about more than time, and extends to being able to choose their work to connect it to a purpose or passion. One woman, after being part of a corporate acquisition where it was clear her function was not a priority for the combined entity, told us, “My role would have been a peripheral thing for them, and I didn’t want it to be peripheral. That’s when I decided I wanted to do my own thing.”
Still others want to capture more of the value they create by cutting out the middleman. This mindset is particularly prevalent in consulting, where workers may know the rate at which they are billed out to clients. This knowledge translates to bargaining power when it comes to negotiations with potential clients. One soloist calibrated her rates such that she could cap her billable hours in favor of leisure travel. “My goal is to work 105 days a year. There’s too much life to live out there.”
Implications for financial planning
So, if the world of work is undergoing a sea change, what will financial advisors and their clients need to do in order to shift their mindsets and embrace change? Like any paradigm shift, huge risks and new opportunities mutually co-exist.
- People choosing an episodic career may be on their own to find the protections and benefits that an employer typically provides. That includes not only insurance and income protection, but also the behavioral nudges and default savings options that come with salaried employment. “Having an employer was like having a mother take care of me,” another soloist who’d left the salaried workforce told us.
- Incomes in prime earning years may be more volatile than in the past. It’s no wonder then, that non-income-based formulas for retirement readiness, like the “25 times annual expenses” espoused by the FIRE (Financial Independence/Retire Early) movement, are gaining in popularity. Planners and advisors will increasingly need to pay attention to shorter intervals of income for clients in accumulation phase.
What financial professionals can do
As tenure in traditional employment gets shorter, so will the number of workplace retirement savings accounts that are left behind at previous employers. But perhaps instead of just focusing on the IRA rollover opportunity, advisors should try to help people smooth their transition to an episodic career. This could mean, for instance, help finding protections traditionally accounted for in the workplace, adding business and career coaching to their repertoires, or helping clients align their passion with their unique formula for work.
As the world of working continues to evolve, Fidelity will continue to explore, examine and develop solutions to help workers, their employers, and financial professionals be successful.