photo: Fabricator of Useless via Flickr

What do Wall Street financial advisers tell their clients about Social Security? That they shouldn’t count on it. In fact, ex it out of your planning altogether. But behind the scenes, brokers and advisers eagerly use Social Security as a marketing opportunity – even bringing in experts from the Social Security Administration itself to educate them on the ins and outs of the program.

On Wall Street is an online magazine for Wall Street brokers and financial advisors. A feature in the January issue offers a fascinating look at the Street’s convoluted but always opportunistic thinking about Social Security.  Author Matthew Leung notes,

While the branch managers we interviewed believe that there is still a strong need for education on the topic of Social Security, many noted that today’s message is different. Top branch managers indicated that their financial advisors are significantly downplaying the role of Social Security in an effort to manage their clients’ expectations and present alternative income solutions.

“In our retirement planning analysis, we run projected cash flows and income needs with and without Social Security, due to the uncertainty of exactly how it’s going to get paid, when it’s going to get paid, or if it’s going to get paid at all,” one branch manager says. Another branch manager concurred, stating: “In all of our retirement projections, we discount the value of the client’s projected social security income and encourage clients to assume that Social Security will not provide much, if any, income throughout their lifetime.”

In other words, the people who many Americans – at least those with some assets to manage – rely on to plan their retirement savings strategy have internalized the message that Social Security benefits will have to be slashed. So much so that there’s little point in even considering them a factor. Indeed, investment firms have built models that discount all or most of the benefit that makes up the majority of income for two out of three retirees. . . .

Wall Street is entitled to its opinion, of course. But this approach to the issue is a potent inducement for working Americans to assume a future scenario that’s actually quite debatable. In fact, supposedly objective investment advisors are taking what amounts to a controversial political stand and dressing it up as dispassionate advice.

Rather unsporting of them, since Social Security itself proves to be a prime marketing opportunity for Wall Street as well. Says Leung,

Financial advisors can even use social security benefits as a reason to initiate client contact. According to one branch manager, it’s a conversation starter and an excuse to set up a meeting. “Since two months before a client’s birthday he receives a social security statement, we call him and ask him to come in for an annual review and to bring the statement with him. That’s working pretty well.”

Once they’ve got their attention, advisors can counsel their clients on how to get the most out of their Social Security benefit. In fairness, working people tend to need some good advice on this. Benefit reductions from early retirement, how to maximize spousal benefits, when and how much one can work without being penalized or taxed on benefits – all take some advanced planning and thought.

It’s really just a lead-in to the real subject: how to create a “supplemental” income package out of the instruments the advisor has on offer: dividend-paying stocks, corporate and muni bonds, and annuities. But to makes sure they know what they’re talking about,

many branch managers said that they bring in experts from the Social Security Administration and/or they partner with universities to provide advisors education.

So on the one hand, Wall Street warns working America not to count on Social Security. On the other, it advises clients on how to get the most out of the benefits.

Social Security is one of those things that Wall Street can have both ways. Financial services purveyors know that the “don’t-count-on-it” message is political to the core. They push it because they’d dearly love to manage some of the assets that would pour into individual accounts if the program is ever privatized. On the other hand, they’re happy to use Social Security as a marketing tool in the here-and-now.

If that’s a contradiction, it’s no problem for Wall Street, which profits either way. But for an underpaid, recession-battered household, it would be nice if the practical advice didn’t come wrapped in an ideological message.