Many advisors lack the expertise to help retirement-income clients deal with Social Security or Medicare, in spite of the importance of these clients to their practices, says a new report.
The report, Retirement Income Insights 2013—Attracting and Engaging Retirement Income Clients, by GDC Research and Practical Perspectives, found 40% to 50% of the average advisor’s clients are in or nearing retirement, but advisors lack knowledge on these subjects to engage and help clients.
“Clients are coming in and these are the types of challenges they are facing,” said Howard Schneider, president of Practical Perspectives. “Advisors are less comfortable engaging them on these topics and therefore are not truly capable of helping clients at the level the client expects or desires.”
To provide more services, advisors may want to build relationships with experts on a broader range of retirement subjects, the report says. Larger firms may choose to hire professionals in-house, while midsize and smaller firms would most likely refer clients to Social Security or Medicare professionals in their communities. Financial advisors could also include experts in meetings with clients to offer a more complete picture of what programs and options are available to them.
The report also found that advisors are divided on the best way to generate retirement income. They tend to favor one of three core philosophies:
1) The risk-adjusted total return approach focuses on providing systematic cash withdrawals. It emphasizes portfolio diversification and performance like that for pre-retirees, though generally more conservatively.
2) The pooled or time-segmented approach establishes different pools of assets, each with its own objective, duration and risk/return profile to protect clients from market volatility.
3) The income-floor approach has the goal of providing the minimum income for essential client expenses through a low-risk strategy. The advisor manages the remainder of the portfolio for growth to satisfy the client’s discretionary expenditures. Forty percent of advisors use the first approach, the report said. The rest are split between the second two.
“There is little doubt that product providers and distribution platforms are trying to help advisors support the growing number of individuals seeking retirement income guidance,” Schneider said. “Yet many of these organizations are still struggling for success, despite the growth in the market. Our research suggests that advisors need tailored support and training to be more effective working with aging boomers.”
The report is based on more than 600 online surveys with financial advisors. Those surveyed include wirehouse and regional brokers, independent brokers, financial planners, registered investment advisors and bank/insurance representatives.