Joe Duran

Duran Duranblog

Joe Duran

Paying for retirement planning in a low return world: Are advisers worth the cost?

We need to be candid about the realities facing today's pre-retirees

Sep 19, 2016 @ 2:08 pm

By Joe Duran

At a recent open house hosted by one of our new offices I encountered something quite unusual: Affluent retirees were openly questioning costs in a large group setting. One gentleman commented, “I didn't mind paying 1% in fees when the stock market was going up 12% and bonds yielded 6%, but shouldn't adviser fees be lower now that everyone is making less? Should I just be doing this myself?” Most of the group was either a little taken aback at his directness or nodding in agreement. We probably all have clients wondering the same thing (even if it's in a less public setting).

Since the turn of the century we have experienced two 50% declines in the stock market, a real estate collapse and a decline in interest rates from 6.7% to a measly 1.5% today. The DJIA is up only 14% in 16 years. Prestigious firms, including McKinsey and GMO, are forecasting future returns of low single digits for the equity markets.

(More: 3 things financial advisers need to know when serving female clients)

All the new, cheaper investing options out there must look pretty attractive to people comparing fees to returns. Add to that an ever increasing life expectancy, the disappearance of pension plans and the explosion in health care and education costs. Is it any wonder people are looking for ways to save money?

This generation of pre-retirees might be entering retirement at one of the toughest times in modern American history to do so.


How do you talk to clients about the value of keeping an adviser during retirement years when “returns” may not make it an easy justification? It's important to help them understand the risks of going at it alone. Ask them to consider these three hard truths:

1. Unlucky timing can be very bad for your financial health. The chart below shows two retirees experiencing the same annual market results over a 10-year period, but in reverse order. They each have an average 6% annual return. They each take out 6% annually from their investments. Client A is lucky and has good market performance in the beginning of their retirement, but Client B experiences bad markets at the start of their retirement. After 10 years, Retiree A has almost all of their principal left, but Retiree B is down to barely a third of their principal. And they might have 15 years left of retirement! What should Retiree B have done along the way? Would they have made the right choices without good advice?

Impact of unfortunate timing on retirement plans
• $1,000,000 portfolio
• $72,000 (6%) in annual withdrawals
• Same average return (6%)
• Same annual returns in inverse order
• Very different outcomes after 10 years
Retiree A Retiree B
1,000,000 1,000,000
Year 1 1,168,000 24% -18% 748,000
Year 2 1,294,000 17% -12% 586,240
Year 3 1,326,125 8% 10% 572,864
Year 4 1,466,305 16% 5% 529,507
Year 5 1,658,240 18% -8% 415,147
Year 6 1,453,580 -8% 18% 417,873
Year 7 1,454,259 5% 16% 412,733
Year 8 1,527,685 10% 8% 373,751
Year 9 1,272,365 -12% 17% 365,289
Year 10 971,338 -18% 24% 380,958
Average return 6% 6%

2. Bad assumptions lead to bad outcomes. How many retirees really understand the impact of market drops when they are living on savings? Would Retiree B stay invested after their entire nest egg was cut in half three years into retirement? As we know, market declines are abrupt and unexpected, but most retirees have to consider investing for growth nonetheless. In order to succeed, a retiree's plan has to either have a portfolio that successfully manages risk, or have a process to make the right choices when there is an unexpected setback. How many folks can do this for themselves, especially when nerves are frayed and futures are at stake?

3. Mistakes become far more costly later in life. The older we get, the higher the stakes considering the shorter amount of recovery time. Additionally, the unexpected surprises we experience later in life are not always positive. The best way to recover from a financial mistake is to avoid it in the first place; the second best way is to respond diligently. Having a knowledgeable adviser at your side may change everything.


Financial plans assume that people will live average lives and experience average markets. Neither of these assumptions are likely to be true in anyone's lifetime.

A good adviser is there to help make the necessary course corrections when things don't go as expected (and they won't), and that is far more important later in life and in low return markets.

(More: Learning and profiting from Gen X)

As advisers, we need to be candid about the realities facing today's pre-retirees. When we are willing to have the uncomfortable conversations, deliver the truth and empower our clients with the discipline to make the right choices, our value extends far beyond investment returns.

For those facing retirement, where mistakes can be devastating, our value may be greater than ever.

Joe Duran is chief executive of United Capital. Follow him @DuranMoney.


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