The following is an excerpt from a new research paper, “Shifting the foundation: How the DOL fiduciary rule will change retirement planning and the services advisors provide to clients.” The paper, based on a survey of the InvestmentNews audience of financial advisors, was developed by InvestmentNews Research and sponsored by Nationwide.”
Today, 40% of individual advisory clients are retired, with an additional 25% of clients approaching retirement. Of the assets managed by advisors, 50% are in retirement accounts. And of the assets in retirement accounts, 80% are in IRAs, with the remainder in ERISA-protected employer-sponsored plans.
It is clear, therefore, that the DOL Fiduciary Rule may affect the very core of advisors' clientele and their assets. In fact, when asked which of the services they provide that will offer the most value to clients in a post-DOL world, “retirement income planning” and “financial plan development” were cited by 25% and 24% of advisors, respectively — more than any other response, including investment management (19%).
Based on the findings of the InvestmentNews/Nationwide survey, there are five key implications:
More competition. Since the population segment most likely to need the services of advisors and be receptive to their outreach efforts is retirees and near retirees, more advisors will be targeting this market.
More focus on income. When creating retirement portfolios for their clients, generating income was the No. 1 objective for most (44%) of the advisors surveyed, followed by preserving capital (cited by 36% of advisors) and managing volatility (33%).
More consideration of healthcare and longevity. Overwhelmingly, healthcare costs (cited by 54% of advisors surveyed) and longevity (44%) are the biggest challenges facing advisors when constructing retirement income portfolios. Any retirement income plan that does not consider these two risks and variables, therefore, is incomplete.
A greater need to manage expectations. A world of lower returns makes managing investor expectations even more important. Advisors must help individuals come to grips with the need to save more, withdraw less and perhaps work longer in order to preserve retirement nest eggs that can safely generate only modest returns in the current environment.
Broader thinking required. Given the many challenges ahead, advisors will have to expand the scope of what retirement planning involves, becoming more holistic and programmatic in serving client needs that affect retirement income. There will be greater value in using established assessment tools to determine client needs in key areas, and then documenting the results upon which retirement plans are developed.
Clearly, the regulatory environment in which the advice business operates is important, but clients' changing needs in light of issues such as healthcare costs, longevity and the low-return environment are the real reasons business and service models should evolve.
To learn more about where the opportunities exist for advisors to transform their business models, please download the full research report here.
