The next generation of investment advice for defined contribution participants is here.
After years of offering advice on the accumulation phase of retirement, several providers now are planning services that focus on the withdrawal phase.
The next generation of investment advice for defined contribution participants is here.
After years of offering advice on the accumulation phase of retirement, several providers now are planning services that focus on the withdrawal phase.
TIAA-CREF Inc. of New York, Merrill Lynch Retirement Group of Pennington, N.J., and Great-West Retirement Services Inc. of Greenwood Village, Colo., are planning to roll out specific investment advice to DC clients on asset withdrawals.
As the baby boomers approach retirement, many are looking for this kind of advice, said James Nichols, vice president of advice strategy for TIAA-CREF.
“The shift has gone from how do I accumulate to how do I spend down?” said Mr. Nichols, whose firm is starting to focus on investors’ primary concern — not running out of money.
The market for investment advice has changed considerably, said Christopher Lyon, a consultant at Rocaton Investment Advisors LLC in Norwalk, Conn.
“The offering has evolved. What the service looks like, the way it’s paid for ... it’s almost a different market,” said Mr. Lyon, adding that focusing on the spend-down phase is the sensible next step.
Currently, most DC providers offer investment advice through such independent third parties as Morningstar Inc. of Chicago or Financial Engines Inc. of Palo Alto, Calif. Merrill Lynch and Great-West both use the services developed by Ibbotson Associates, now part of Morningstar.
All of them will be focusing on withdrawal advice, as well.
Making it proprietary
TIAA-CREF, however, is seeking to offer proprietary investment advice.
“We implemented a program years ago where we offer objective advice through a third party; that was our first foray into advice,” Mr. Nichols said. “We are in the process of introducing the advice that answers the question: ‘How do I make sure I don’t run out of money? How do I ensure that I can achieve spending down my assets and realize the kind of retirement livelihood I want?’ The advice will come from TIAA-CREF.”
The service will take a snapshot of all participant assets, Mr. Nichols said.
“The problem many participants have is that they have five or six institutions where they are invested and they don’t get a clear picture,” he said.
Once participants receive that snapshot, TIAA-CREF will advise them on the best way to proceed during retirement.
“Typically, we are finding that many of our clients want a guaranteed income stream, but they also desire some level of liquidity. We will give them a mixture of strategies with maybe some annuitization that will lessen volatility,” Mr. Nichols said.
Steve Mitchell, director of education and planning for Merrill Lynch, said its service, Merrill Lynch Advice Access, will roll out a program that accommodates participants nearing retirement.
Advice Access already provides plan participants with a recommended retirement savings rate. It also recommends a retirement age and an asset allocation or specific portfolio. Mr. Mitchell declined to elaborate on what the new service will offer.
David McLeod, managing director of Advised Asset Group LLC, the registered investment adviser of Great-West Life and Annuity Insurance Co., said that the withdrawal phase is a significant area of development for Great-West.
“As our population ages, there are new demands,” he said. “We’re working on [the withdrawal area] now and will launch something next year.”
The Great-West service will incorporate advice and managed accounts specifically designed for retiring participants.
“The goal is to make it a seamless change from accumulating to spending down, to make it an easy transition,” Mr. McLeod said.
For everyone
TIAA-CREF has offered the program to select clients on a pilot basis and will roll it out to all participants next quarter.
“We are giving the option through face-to-face meetings, call centers and the web,” Mr. Nichols said. “We are building out that capability, because this is not an uncomplicated conversation.”
TIAA-CREF will not charge participants for the service, Mr. Nichols said.
“This is really an extension of education and guidance,” he said. “It’s attached to the retirement plan. They can choose to expand the relationship further and there may be fees attached.”
Mr. Nichols declined to elaborate.
Financial Engines is researching what is appropriate advice for the withdrawal phase.
“Nearly every retiree struggles with the problem of how best to plan for retirement spending without running out of money,” said a Financial Engines spokesman, who added that the company does not have immediate plans to add draw-down advice to its service offering.
