As retired clients' assets dwindle, advisers work harder, earn less

As clients retire, change in pay model may be warranted

Apr 26, 2009 @ 12:01 am

By Mark Bruno

For advisers, there's a funny thing about retirement income planning: The better you are at it, the less you stand to make.

When it comes to such planning, almost all advisers who provide these services are charging clients asset-based fees once they stop working, which is of course quite different than working with clients when they're accumulating wealth.

If an adviser can successfully wind down clients' portfolios during their retirement years and provide them with a steady stream of income, over time, they'll be earning less and less off of a continually declining pool of assets.

Furthermore, "retirement income planning is also much more complicated and time-consuming than most advisers realize at first," said Dennis Gallant, president and founder of Gallant Distribution Consulting in Sherborn, Mass.

"It essentially requires you to do a lot more work for less money," he continued. "It's the Achilles' heal of providing retirement income advice."

Roughly 75% of advisers charge asset-based fees as their primary source of revenue when working with clients during their retirement, according to a new report on best practices in constructing retirement income portfolios from GDC, consulting firm Practical Perspectives and InvestmentNews.

As theoretically inefficient as this may be, it's a natural progression from the asset-based fees advisers have generally been charging during clients' working years — and switching to an entirely new fee structure or compensation model exactly at the point of retirement might encourage clients to look elsewhere for retirement advice.

"Retirement income planning is about much more than just asset management," said Howard -Schneider, president and founder of Boxford, Mass.-based Practical Perspectives. "It's really longevity planning, and managing their assets is just a piece of the process."

Many retired clients will frequently ask their advisers for assistance with unique issues — such as finding an elder-care specialist or navigating the Medicare system — in addition to typical investment advice and portfolio construction services.

"As an adviser, you are quarterbacking clients through retirement, and you do whatever it takes to meet their needs and demands," Mr. Schneider said. "But how do you get paid for all of it?"

As market conditions improve — and as advisers can demonstrate their expertise in creating reliable retirement income plans — commissions, financial planning fees and project fees should play a larger role in the retirement income process, suggested both Mr. Gallant and Mr. Schneider.

At the moment, however, only about 30% of the roughly 500 advisers polled by GDC and Practical Perspectives noted that trading commissions were a main source of their retirement income revenue or the second-most-common source of compensation, behind asset-based fees.

Insurance premiums and financial planning fees generated significant retirement income revenue for just 24% and 21%, respectively, of advisers, while only 11% of advisers earned a substantial sum off of hourly fees, according to the report.

At the same time, only 7% and 5% of advisers, respectively, noted that project fees and retainer fees were primary sources of revenue for their retirement income services.

"Many advisers are not confident enough in their own retirement income planning and construction skills to change the way they're compensated," Mr. Gallant said. "No one's asking for a raise in the current market environment, but advisers recognize that they will need to eventually charge more for retirement income work."

To Mr. Gallant's point, only about 15% of the advisers polled said that they expected to change the way they charged clients for retirement income advice over the following 12 months. Many, Mr. Schneider noted, are "content to ride out this dilemma for now" and are hoping to offset the issue by persuading clients to consolidate most of their assets with a primary financial adviser during retirement.

"At least that would allow them to work off of a larger pool of assets," he said. "And if they can prove that their services have a real value proposition to their clients, advisers will start getting new clients from referrals as well."

In addition to compensation, the report, "Examining Best Practices in Constructing Retirement Income Portfolios," detailed a number of the best practices advisers use to work with retired clients.

E-mail Mark Bruno at


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