|Best Practices for Retirement Planning
A new study of advisors who specialize in retirement planning identifies the evolution of best practices
December 17, 2009
According to an in-depth survey of experienced advisors who devoted a significant portion of their practices to retirement planning, demands from clients are driving the evolution of retirement services. While responding to the push from clients to deliver more in the way of lifestyle services and to provide more financial education, advisors have not uniformly adjusted their fees to respond to the added service-weight on their practices. The conclusions that appear in fall 2008 report, Advisor Best Practices: Delivering Retirement Income and Transition Support, was undertaken by Dennis Gallant of GDC Research, Sherborn, MA and Howard Schneider of Practical Perspectives, Boxford, MA — two financial services industry consultants.
The researchers interviewed advisors including professionals who work in wirehouse, RIA, regional, bank, insurance and independent firms and have devoted a significant portion of their practice to retirement income and transition support for more affluent clients — and had been doing so for at least 10 years.
“The advisors told us [that] there are two kinds of clients,” notes Schneider. “One of the clients who they’ve been working with for an extended period of time and where retirement is something they’ve talked about and planned. They get to retirement and it's just a transition — there’re no surprises. And then, of course, there’s the other kind of client who parachutes in right before retirement. They’re 63-years old and they have six months, six weeks, six days and six hours until they’re going to retire.”
The study illuminated several trends in the delivery of retirement support:
In general, advisors view their retirement clients as differing in significant ways from their younger clients in accumulation mode. They view retirement as requiring a higher degree overall integrated planning given the larger number of life issues that need to be addressed within a context of living off investment income without knowing the actual time horizon.
Not surprisingly for a service area undergoing transition, advisors agree more widely on what constitutes traditional service offerings than what’s included among the newer practices areas.
There are a number of services that almost all advisors deliver to retirement clients. The traditional functions that define advice delivery and include:
The study found that almost all advisors had considerable experience in these areas and apply them as a regular part of the client solutions. Advisors either consult directly with clients or coordinated solutions with the help of outside-specialist attorneys, CPAs and insurance experts.
“Beyond the study, we would expect with more and more advisors, if they really want to deliver retirement income and retirement transitions that address a clients’ needs well, they are going to need to broaden the scope of what they do,” states Schneider. They can do it one of two ways. They can either bring some of that resource into their own practice so they can handle it internally, or what a lot of them were doing is networking with others. So, they’d find an elder care specialist in their community and that would become the eldercare specialist to whom they bring their client. Especially with the smaller practices, it’s much more likely that they’re going to network with others.”
With clients considering new scenarios for retirement life styles, they’re bringing more nonfinancial issues to discussions with advisors. Beyond satisfying client needs, broadening a practice focus often reflects a business strategy for positioning as the key trusted advisor for any challenge or issue clients face. ”For most clients, life decisions are more crucial than investment choices,” notes one advisor in the study. “Retirement is a door for most clients, not a wall. I need to help them get through the door.”
Advisors viewed several drivers in the expansion of additional retirement services: higher client expectations, shifted financial responsibility to the individual from the safety of pension plans, increased longevity, more complicated family and personal situations and greater need for self-fulfillment in retirement years.
The emerging services that advisors are adding to their practices fall into five groups:
After conducting the study, Schneider was surprised that there really was no agreed-upon best practice on how to manage money for retirement income clients. Their confidence in their investment plan remained equally strong, however. Advisors express little concern that clients would return in 10 years or 15 years to complain about inadequate retirement income, as long as they regularly checked in with clients to make sure no major issues have arisen. Over-spending by the client could disrupt any carefully plotted plan, they felt.
Schneider and Gallant have just completed a second study in which they went back to the same advisors and asked how they were doing with the market downturn. They remained confident in their abilities to help their clients, although they showed somewhat lower confidence in their clients’ ability to achieve the type of retirement that many had expected.
Advisors are still being compensated primarily through asset-management fees, which again surprised Schneider and Gallant. Advisors spoke about providing more retirement support and the extra effort and time it requires and the additional follow-up conversations. Yet the fees they’re charging are for assets under management. Some are charging planning fees, some insurance premiums, depending upon the products, but the core of is asset-based fees and they have not moved aggressively to charge any kind of retainer or project fee or other kinds of non-asset management fees. “We think that that will ultimately happen, but it hasn’t happened yet,” notes Schneider.
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