Get Ready to Guide Clients Through Income Distribution

Aug 1, 2018 @ 12:01 am

By Zach Parker, Securities America vice president of Wealth Management Product Strategy

Every day, thousands of baby boomers are cleaning out their desks and heading into retirement. As a result, demand for income-distribution specialists who can help them plan for this new chapter in life is expected to climb for many years.

If you aren't prepared to address this growing need, it could prove costly.

“As a third-party money manager, I've talked with other advisors whose clients have called them and said, 'I appreciate what you've done for me. You've been great. My portfolios have done well. You've helped me with the plan. But now I'm getting ready to retire, so I've decided to go with an advisor who is an expert in income distribution planning,'” said Sharla Jessop, CFP®, president and private wealth management consultant at Smedley Financial Services in Salt Lake City, Utah.

So what can you do to ensure you're not one of the advisors getting this bad news from your retiring clients? Start by evaluating the commonly used income-distribution strategies and decide on one that works best for you and your clients.

In general, an income distribution specialist will employ one of three common strategies – systematic withdrawal, an annuity with a guaranteed minimum withdrawal benefit or time-segmented allocation. All three have pros and cons you should be aware of before adopting them as part of your business model.

Clients who have focused on accumulating wealth can easily become confused by the variety of income-distribution strategies available to them. That's why retirees need an advisor who can properly guide them through the income-distribution process, said Joseph Davis, CDFA,  president of Davis Financial in Ogden, Utah.

“When it comes to actually creating a distribution plan, most clients don't know where to start,” Davis said. “Retirement planning advice is overweighted toward accumulation. There is very little information on actual distribution strategies.”

To generate a guaranteed income with the highest return, Securities America has developed NextPhase™, a strategy that combines an annuity with a guaranteed minimum withdrawal and a time-segmented allocation.

Using this process, funds needed immediately are guaranteed. Those needed in a few years are invested conservatively. Funds needed several years or even decades down the road are aggressively invested. A typical NextPhase plan will incorporate three to five asset “buckets” allocated into investments moving at different speeds, with a final pool targeted to the client's legacy objectives.

This time-segmented model gives Arlon Enmeier, CFP®, a financial advisor with a practice in San Clemente, California, the flexibility to meet his clients' needs regardless of their portfolio's size.

“That progression makes clients feel comfortable,” Enmeier said. “Is their money going to last for their lifetime? That's one of the biggest concerns every client has. The multi-million dollar clients have the same concerns as the smaller clients. They just spend a lot more. So they buy bigger cars, more boats and bigger houses, but they can run out of money just as easily as a smaller client can.”

Income Distribution Isn't Just About the Numbers

Even with the demise of the Department of Labor's fiduciary rule, the industry continues to transition into a fiduciary-focused era. If you plan to capitalize on the growing need for income distribution specialists, it will be more important than ever to show why each step of your plan is in your clients' best interests.

As a fiduciary, you'll need to focus on much more than your income distribution plan's numbers. You'll also need to continue to learn new tactics and strategies, individualize income plans based on both financial and emotional preferences and take into account each client's unique emotional needs as they shift from accumulating assets to distributing them in retirement.

Once an income distribution plan is implemented, it's no longer about historical probabilities. If a client can't emotionally handle setbacks, they could seek to abandon the plan at the most inopportune time.

To help head off the possibility of clients making a costly decision, you'll need to work closely with them to identify critical factors to customize client plans.

Because risk tolerance often changes between working years and retirement, you'll need to modify how you assess risk tolerance.

Establish an Income Floor

To establish an income floor that a client is comfortable with, you may also need to consider guaranteed-income products based on their:

  1. Percentage of assets needed to produce desired retirement income
  2. Percentage of income from other guaranteed sources
  3. Preference for guarantees over inflation-adjusted income
  4. Desire to leave a legacy

Build Emergency Reserves

Because unplanned withdrawals can expose plans to a higher risk of failure during distribution, you'll need to help clients establish an emergency reserve. Start by identifying their current spending habits and determine whether their debt is going up or down during their working years.

Then add up all the unexpected expenses of $5,000 or more they have faced in the last five years. You'll also need to consider their personal decisions. Do they plan to provide assistance to children or grandchildren? What are their current and future residence considerations?

Leaving a Legacy

Many clients in retirement hope to leave a legacy for their children, grandchildren or a favorite charity. To ensure they won't outlive their assets and will have enough to pass along after they're gone, be sure to review your client's life insurance, long-term care policies and Medicare coverage and thoroughly discuss their estate planning documents

Ten-thousand baby boomers per day are entering their retirement years. You need to be ready to help them smoothly transition from building assets to distributing them to ensure they can live the retirement of their dreams.

To learn more about how you can develop a successful income distribution strategy, be sure to download Securities America's award-winning whitepaper, “Capturing the Income Distribution Opportunity.”

Securities offered through Securities America, Inc. Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc.


What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

Oct 22


San Francisco Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


The power of commodities in 2019

Historically commodities have outperformed stocks at the end of expansions and in early recessions. So why haven't commodities rebounded? John Love of USCF explains.

Latest news & opinion

Look for more changes at Cetera Financial Group

CEO Robert Moore's resignation signals further adjustments at the IBD network.

10 top scams targeting seniors

Phone calls to a Senate committee hotline show trends in frauds perpetrated against seniors.

Robert Moore, Cetera CEO, stepping down for health reasons

Chairman Ben Brigeman will serve as interim chief executive while a search for a permanent CEO is conducted.

The AMT is no longer a problem for many clients

With income thresholds higher and a lower SALT deduction after tax reform, the AMT will realistically only apply to wealthy Americans with out-of-the-ordinary tax events.

Cetera, other broker-dealers refuse to sign Ohio National contracts

Advisers wonder what the lack of a formal brokerage agreement means from a regulatory standpoint.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print