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Retirement Planning Becomes A Bigger Part of Advisor’s Job

Retirement planning has become a much larger part of an advisor’s business over the past five years. A LIMRA Secure Retirement Institute study found that half of advisors estimate that 50 percent or more of their business activities come from retirees and preretirees. This compares with only three in 10 advisors who said this in 2011. 

This is certainly not surprising when considering an earlier LIMRA SRI analysis showing Americans ages 55 and older own 70 percent of the total investable assets. Our study on retirement income planning revealed several key insights from the advisors we surveyed.

From a “big picture” perspective, 60 percent of advisors believe minimizing client risk of running out of money is the most valuable service they provide. Only 44 percent said this in 2011.  Here are some other insights revealed by the advisors we surveyed.

Advisors get it: Retirement income planning is good for business growth. Nearly half of advisors surveyed strongly agree that retirement income planning is vital for growing their practices. Six in 10 advisors link retirement income planning with improved client loyalty and confidence. Four in 10 advisors strongly agree that retirement income planning leads to clients consolidating assets with the advisor.

Six in 10 advisors recognize that they cannot meet their clients’ retirement goals without compiling a retirement income plan. Nearly two-thirds of advisors agree that not doing retirement income planning would threaten their practice, because clients would switch to firms or advisors specializing in that service.

Most advisors use “bucket” or a systematic withdrawal plan (SWP) strategy for their clients. More than 50 percent of advisors named a bucket or an SWP approach as the two most frequent income strategies they recommend for their clients’ withdrawals in retirement. A bucket approach is typically an income strategy to allocate and manage assets in three staggered time frames. These are short-term/fixed-return investments used to generate current income, intermediate-term investments gradually converted into short-term investments, and long-term investments gradually converted into intermediate-term investments.

Both of these strategies are easy to explain and are used widely by advisors due to their flexibility and ability to retain assets under management.

Advisors agree on the benefits of guaranteed lifetime income products, but resist recommending them due to product inflexibility.

Although nine out of 10 advisors agree that guaranteed lifetime income products provide clients peace of mind in retirement and believe it is important for clients to own them, they also resist using them in client portfolios. This attitude toward guaranteed lifetime income products remains even though many suggest that one-quarter to one-third of a client’s portfolio be invested in these products.

Advisors struggle to incorporate more guaranteed income solutions in client portfolios due to the products’ lack of flexibility. Forty percent of advisors agree that “the guaranteed income products compromise my ability to manage a client’s portfolio as circumstances and needs change.” In addition, at least 30 percent believe the products are too complicated to explain to their clients. These sentiments are particularly prominent among fee-only advisors.

The study also found an increased demand for training. Half of advisors said they want more training in Social Security claiming strategies and four in 10 want to know more about health care planning in retirement. Regulatory training has emerged as one of the top areas of interest because of the Department of Labor’s recent fiduciary rule. Forty percent of advisors said they seek training on regulation.

The role of advisors has evolved in recent years from financial product expert to financial planner to retirement income planning specialist. Retirement income planning involves many complicated decisions, including making trade-offs among client options and preferences.

Our study shows that although creating a written, formal retirement income plan is demanding on advisors’ time and resources, it’s well worth the boost in client confidence about retirement security. Retirement income planning is emerging as the cornerstone for building trust and value between advisors and their clients.

Jafor Iqbal is associate managing director, retirement research, for LIMRA Secure Retirement Institute. In this role, he is responsible for managing retirement income research projects. Jafor may be contacted at [email protected] .

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