The financial setbacks of the last few years-along with investors' steep portfolio losses-have turned retirement planning on its head. Scores of baby boomers and retirees that once looked forward to a post-work life of leisure and the pursuit of new interests now face a less certain future.
Being forced to search anew for financial security for their golden years, many clients now demand from advisors emotional reassurance, and that means some guaranteed income for their retirement, much more than what their traditional IRAs, 401(k)s and Social Security offer.
MFS Investment Management recently surveyed investors with at least $100,000 to invest. Forty-three percent of respondents said their risk tolerance had decreased while only 14% said it had increased. Some 36% said their objective is to protect their principal and not lose money, up from 14% before the economic downturn. Fifty-four percent of the respondents said they were more concerned than ever about being able to retire on schedule. And 45% agreed that they've lowered their expectations about what life will be like in retirement.
Little wonder that since the meltdown, investors are seeking more help. They face rising health-care costs and have to overcome the loss of value in what is likely their major asset: their home. They don't just need someone to tackle their investment needs, but someone to help manage their risk.
Income Distribution Vs. Accumulation
The new emphasis on income distribution, as opposed to the accumulation of assets, is propelling more advisors and wealth managers to position themselves as retirement income specialists to meet these new demands.
There may be drawbacks in charting this course, at least initially. Clients in withdrawal mode may pay lower asset management fees. Secondly, some clients in that age bracket will die, passing assets from the advisor to a charity or to non-client beneficiaries. The advisors will then have to replenish their clientele with younger people.
On the other hand, the distribution phase doesn't necessarily have to mean lower fees and revenues. William H. Kantner IV of the Chartered Advisory Group Inc. (with assets under management of $180 million) in Chadds Ford, Pa.-a 27-year veteran of the investment business-has successfully demonstrated that the distribution phase of a client relationship, if managed properly, can actually offer opportunity and be financially rewarding as well.
Kantner recently found himself in a position to offer his retirement planning services to 120 retiring telecom employees. He ended up winning business from 66 of them after demonstrating a time-segmented distribution NextPhase strategy developed by giant broker-dealer Securities America Inc. These clients represented $40 million in rollover dollars, which Kantner calculates as approximately $500,000 per year in recurring management fees to Chartered Advisor Group.
Kantner says this particular platform set him apart from other advisors bidding for the business.
"The NextPhase platform gave us a dynamic tool to be able to counsel clients who were looking at making the retirement transition, and gave us confidence that they could afford to retire with their current income need, as well as making sure that they did not run out of money in their later years," says Kantner, who is now primarily a retirement income specialist. Indeed, most of his clients-average age 56-are in the distribution phase or will enter it in a year or two, he says.
"Because the average is young, the NextPhase proposal system gives us an outlook as to whether retirement transition is feasible to the younger retiree. We also tell our clients this is a different litmus test to pass because the platform will let the client know whether retirement goals are attainable. So, in other words, we can counsel a client as to whether or not they can afford to retire."