Advice industry adapts to changing concept of retirement

As people live longer, the distribution phase becomes more critical

Sep 14, 2014 @ 12:01 am

By Mary Beth Franklin

Sharp increases in longevity are changing the very concept of retirement, and the financial advice industry must adapt.

“For decades, the financial services industry has positioned retirement as the ultimate goal, the endgame,” Jan Blakeley Holman, director of adviser education for Thornburg Investments, wrote in a series of articles aimed at advisers. “Today we're discovering that retirement is just another life event, like a "graduation' from work.”

The articles, titled “Retiring Retirement: The Era of Longevity Planning” and available at longevity, address a number of important issues to better serve clients. They include accounting for the full impact of taxes, expenses and inflation on investment returns; continuing to invest for growth to offset inflation, even in income-focused portfolios; and factoring health and long-term-care costs into a retirement income plan.

“Managing wealth during the second half of life integrates your in-depth understanding of the science of investing with your flair for the art of advising clients,” Ms. Holman wrote. “Unlike the accumulation stage of wealth management, which is fairly straightforward, successful navigation of the preservation and distribution phases requires a great deal of knowledge, confidence and a steady hand.”

Separately, Hearts & Wallets, a financial services research firm, released a comprehensive analysis comparing advice offerings available from online calculators, employer-based retirement plans and adviser-assisted experiences for a hypothetical couple on the verge of retirement. The results are included in a report titled “Inside Retirement Advice 2014.”


The study found full-service experiences tend to take into account more inputs (information) from the consumer, to provide more outputs (analytic conclusions) and to allow more “what ifs” (testing of tradeoffs, such as, “How will delaying taking Social Security for another year impact my chances of never running out of money?”).

The study also found that the average customer experience includes 12 inputs, such as current household income, sources of income, desired lifestyle and health considerations. The most robust full-service experience collects 20 inputs, while the least robust self-directed calculators include just three.

“Examining the number of inputs, outputs and what ifs creates a means for financial services firms to benchmark and improve an "at retirement' advice experience,” said Chris Brown, Hearts & Wallets principal and co-founder.

By evaluating the scope of advice coverage, including such areas as Social Security claiming decisions, health, life and long-term-care insurance, taxes, and real estate, the analysis creates a way for financial services firms to gauge — and potentially explain to consumers — why higher-quality advice may be worth paying more for, Mr. Brown said.

Rather than generate predictions about a portfolio's probability of success or failure, financial services firms should focus on answering specific questions about how much clients can spend in retirement and how they should alter their investment strategies to accommodate their needs, the study found.


Although full-service experiences were rated best overall, the introduction of robo-advisers led to a decline in the recommendation quality within the category in this year's survey.

“This is a new category ... with much potential for improvement, but we did not see a serious challenge to the capabilities of a highly trained, dedicated professional,” said Laura Varas, a co-founder and partner of Hearts & Wallets.

“Working with financial professionals — whether full-service advisers or specialized staff at traditional self-service firms — might be more expensive, but the advice and guidance is also more robust,” Ms. Varas said.

The potential retirement income market is huge. An estimated 1.5 million people will retire every year until 2025, according to the LIMRA Secure Retirement Institute.

Prior LIMRA research found that more than half of preretirees 55 to 70 are not confident that they will be able to have the lifestyle they want, perhaps reflecting that fewer than four in 10 preretirees work with a financial adviser.

But those who have a financial adviser are much more assured about their prospects. In fact, 79% of preretirees who work with an adviser say they are well or moderately prepared for retirement.

Financial advisers face enormous opportunities — and challenges — in advising millions of people on how to turn their lifetime of savings into retirement income. Those who provide the most comprehensive advice are likely to enjoy the biggest rewards.

(Questions about Social Security? Find the answers in my e-book, at


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