From the June 2007 issue of Boomer Market Advisor • Subscribe!

June 1, 2007

Zero in on distribution planning

Within the first 30 seconds of speaking with Robert Del Col, you'll realize just how committed he is to the issue of retirement income education. Whether it's his involvement with the Retirement Income Industry Association or his recently released white paper on the same subject, the president of Boston-based FundQuest is sounding the alarm on the industry's lack of preparation on the distribution side -- and offering solutions to help. Del Col spoke with Boomer Market Advisor about the extent of the problem, and opportunity it offers diligent advisors.

Boomer Market Advisor: General industry consensus holds that manufacturers and advisors -- to say nothing of the investing public -- are still too focused on accumulation; they are simply not prepared for the intricacies of the distribution process. Your retirement income management product is meant to address this problem. How does it work?
Robert Del Col: It's not a product; it's a platform. If you saw Sunlife Financial's recent study (Boomer Market Advisor May issue, page 22) you'll see people are planning quite a bit of activity for their first five years of retirement. They might not have thought the costs through, so they will spend more than they intended and it will affect the rest of their retirement. Our platform is distribution-focused almost exclusively, and it helps advisors deal with this type of scenario. At the same time, it is set up to include continued accumulation as part of the planning, projection, implementation and ongoing monitoring capabilities. Most retirees will need continued asset growth to help meet needs for what can be three decades or more of income.

BMA: How serious is the lack of distribution planning? How big is the opportunity for advisors who really educate themselves on this process?
RD: Currently, an estimated $12 trillion is held in existing retirement plans. The 77 million boomers who are quickly approaching retirement control the vast majority of this total. In fact, boomers' overall assets of all types are expected to grow to nearly $30 trillion by 2010. But these statistics don't tell the whole story. Studies indicate that while retirement may be viewed as the single most important financial goal for many Americans, fewer than 50 percent have actually created a financial plan for their retirement.

BMA: What should advisors expect and watch out for when they begin the dialogue with clients about distribution planning?
RD: Due to the overwhelming complexity of retirement planning, the majority of people will turn to financial professionals as they approach retirement. The questions investors need to ask include 1). Will I have enough to retire? 2). Am I invested appropriately? 3). What is the best way to generate the income I need? 4). Will I have to work in retirement to support my lifestyle? 5). What are the trade-offs and key drivers?

There are a number of factors that measurably affect a retirement plan and must be taken into account in the planning process. These include longevity, health care costs, market risk (or the effect of market volatility on a portfolio during the distribution phase) and functional inflation.

BMA: You talk about the essential elements of a well-defined planning process. What are they?
RD: They come in three phases: Phase one is planning, which includes capturing client data, establishing spending and legacy goals, reviewing insurance and asset allocation plans, long term care insurance, etc. From that an actionable plan can be constructed.

Phase two is implementation, where the clients and advisors agree on a plan, they initiate its implementation and establish a withdrawal strategy. Phase three is the monitoring of the plan and includes quarterly performance and annual reviews, identifying the impact of critical life events and adjusting inputs and goals. It's very important that once the plan is developed, it must be reviewed at least annually. Something could come along that knocks it off kilter, and that may be a good thing, but nonetheless it must be reviewed.

BMA: And the benefits of following this approach?
RD: There are many. Retaining clients before and during, consolidation of the client assets, productivity gains and the proper documentation of client data, goals and assumptions, to name a few.

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