SOMETIME IN THE last three months, the world changed.  Perhaps the factors that caused the change took years to form but all these factors seemed to come together recently all over the world.  To underscore the magnitude of this change, no one is denying it and no one is sure what the world will be like when the changes finally and fully take hold.  Regardless of what happens, there is no doubt that the world has been affected in a deep and meaningful way.

To understand how dramatic this change is as opposed to, say, the dot com bust, people are acknowledging fundamental changes to their lifestyles like retiring later.  It was only recently that later retirement was not seriously considered as a solution to the Social Security crisis.  No more.  People are changing their thinking on the homes they will live in, the colleges they plan to send their children to, the cars they drive and the vacations they will or will not take.  Like any real change, it is not inherently good or bad – it just is.  How we react or perceive it makes all the difference.

With all due respect to Congress and pundits in Washington, the biggest problem with our retirement system in general and 401(k)s especially is not high fees or the lack of transparency, not to diminish their importance.  The biggest problems are that participants do not defer enough to be able to retire comfortably, they have no idea about how to invest given their age and financial goals, and they do not react rationally, or at all, as circumstances change.  But because participants and plan sponsors realize that the world and their personal circumstances have changed, they are more willing than ever to listen and change the way they view retirement.  Deferring more in these hard times may seem impossible, but in reality, now is the best time.  More money than ever has been moving to asset allocation funds, which will continue, but in the new world we need to protect against the entire equity market collapsing, looking to new ways to manage risk.  New types of target date and risk-based funds, or some combination, needs to evolve.  And finally, as people realize that they will live and work longer in the new world, they need a product that provides a steady stream of income and guarantees against outliving their money, especially if we experience another financial tsunami.

Advisors play the key role in this new world.  Trust in large, previously respected financial institutions has never been lower.  Sponsors and participants trust who they see and speak with, not those that promise the most or have the best advertising campaigns.  The first step into the new world is for advisors to get their clients to acknowledge that the world has changed and that they must take action.  No one knows exactly what will happen but meaningful and consistent communication with clients as well as partnering with stable and trustworthy intuitions is a good first step toward succeeding in this new world.  Ready or not, welcome to the new world.