Financial advisors need to turn the page on the way they're used to talking about retirement with clients, says 3D Asset Management, a provider of turnkey asset management programs for advisors.
There are six key issues that advisors need to consider as their clients age, says 3D Asset Management.
“The retirement income opportunity for advisors will be huge during the next few years and we want to give the advisors the support they need,” says Sheryl O’Connor, principal and managing director of the firm, along with John O’Connor.
To do this, 3D identified six strategies that are used during the accumulation phase for clients that need to be viewed by advisors in a new light:
No. 6. Don’t be an asset manager: Be a plan manager.
Retirement income planning is more about managing your clients’ emotions and life events than it is about managing their money.
No. 5. Don’t sell your clients a product: Sell them a strategy.
Having a strategy for your clients that is grounded in principle and able to properly assess their time horizon, amount of income needed and individual risk tolerance will help you determine the right products for them based on their needs.
No. 4. Don’t avoid risk: Minimize risk.
The probability of higher risk investments outperforming riskless investments increases with time. As a rough rule of thumb, the average retiree will need to have about 30 percent to 40 percent of his or her portfolio in equities to have an income that can keep pace with inflation and have a beginning withdrawal rate of 4.5 percent.
No. 3. Don’t talk about risk-weighted asset allocation: Talk about time-weighted asset allocation.
Determining the amount that goes into your client’s more aggressive asset classes is not so much a function of the client’s risk tolerance anymore, but a function of how long he or she has before the asset class is needed to provide income.
No. 2. Don’t chase returns: Focus on the client’s income needs.
Advisors need to change the dialogue and focus for clients as they approach retirement and begin communicating in terms of retirement income. When wealth accumulation planning transitions to retirement income planning, ROI must be re-defined from return on investments to reliability of income.
No. 1. Don’t talk in terms of saving: Talk in terms of spending.
When it comes to retirement income, the conversation you have with your clients should shift from saving strategies to spending strategies. The question is no longer, “How much do I need to save?” but “How much am able to spend?”