Advisers need to pick up their game when calculating clients' retirement

Advisers need to pick up their game when calculating clients' retirement
With retirement tools proliferating, clients need ones that advisers can use to tell a story.
JUN 26, 2015
More and more companies, both traditional financial services firms and robo-advisers, offer retirement calculators but finding one that inspires an effective retirement plan customized to each individual's financial situation has become challenging. One of the most common, if least effective, 'calculators' is having clients come up with an arbitrary number on their own that they can try to reach by their desired retirement age. Interactive digital retirement-planning tools can be more effective, enabling advisers and clients to adjust a range of variables such as time horizon, portfolio allocations and inflation to gauge the impact of each one on that investor's likelihood of achieving various retirement objectives. Personal Capital, an automated investment platform for consumers, has launched a free online retirement planner in response to this growing necessity. The planner includes a variety of customizable features for the individual, such as buying versus renting a home and managing when to claim Social Security benefits. “If you look at robo-advisers, they don't provide advice,” said Jim Del Favero, chief product officer at Personal Capital. “The retirement calculators from others are often geared toward encouraging you to save a certain amount of money through the product they're selling.” SINGLE NUMBER CALCULATORS In fact, some of the more static calculators that provide individuals with the ability to toggle between options and input different financial assumptions are geared toward generating a single number, which investors are then supposed to work toward. But because the calculators are all built with different assumptions for market returns, interest rates and inflation, they provide estimations that can vary widely and could be unattainable for some investors in the event of a prolonged bear market. “These are all forecasts with a wide range of possibilities, so saying there is a single number is a flawed approach,” said Dirk Quayle, president of NextCapital, which provides a portfolio-construction and retirement-planning software platform to advisers and investors. Jamie Hopkins, associate director of the New York Life Center for Retirement Income at the American College, said investors don't use general retirement calculators very often. Advisers will have to engage their clients by providing a better visualization of a retirement plan. WHAT'S THE STORY? “When advisers really get clients engaged is when they take that number from the calculator or a different program and generate a story or plan around it,” Mr. Hopkins said. “They can explain, 'Here is how we are going to meet your needs.'” Mr. Hopkins said there has been a strong trend toward traditional companies focusing on retirement planning as most of the clients they've had for decades shift their focus to retirement as it approaches. “It's where a lot of the money is,” Mr. Hopkins said. “A large portion of the country is moving into retirement, so companies are moving their focus along with the market.” Mr. Quayle said he expects to see more companies jumping into the retirement-planning business as government regulations around retirement advice tighten. Betterment, the second-largest robo-adviser in the industry based on assets under management, recently released its own retirement calculator and intends to expand its business into the 401(k) market. “It's going to be full speed ahead — not only retirement planning, but improving the precision of retirement planning, and in terms of getting the right data that is more than just the [assets from a single] account,” Mr. Quayle said.

Latest News

Judge OKs more than $90 million in settlement money for GWG investors
Judge OKs more than $90 million in settlement money for GWG investors

Mayer Brown, GWG's law firm, agreed to pay $30 million to resolve conflict of interest claims.

Fintech bytes: Orion and eMoney add new planning, investment tools for RIAs
Fintech bytes: Orion and eMoney add new planning, investment tools for RIAs

Orion adds new model portfolios and SMAs under expanded JPMorgan tie-up, while eMoney boosts its planning software capabilities.

Retirement uncertainty cuts across generations: Transamerica
Retirement uncertainty cuts across generations: Transamerica

National survey of workers exposes widespread retirement planning challenges for Gen Z, Millennials, Gen X, and Boomers.

Does a merger or acquisition make sense for your firm? Why now is the perfect time to secure your firm’s future
Does a merger or acquisition make sense for your firm? Why now is the perfect time to secure your firm’s future

While the choice for advisors to "die at their desks" might been wise once upon a time, higher acquisition multiples and innovations in deal structures have created more immediate M&A opportunities.

Raymond James continues recruitment run with UBS, Morgan Stanley teams
Raymond James continues recruitment run with UBS, Morgan Stanley teams

A father-son pair has joined the firm's independent arm in Utah, while a quartet of planning advisors strengthen its employee channel in Louisiana.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave