From the August 2007 issue of Research Magazine • Subscribe!

August 1, 2007

The Retirement Toolkit

Research: How do advisors need to change their business model as their client mix moves from a predominantly accumulation-oriented population toward distribution?Lofties: The wealth management business model -- one that provides clients holistic support for all financial related issues -- is an optimum model for advisors to move toward. Wealth managers are in an optimum position to positively impact the lives of boomer clients and they will be financially rewarded for doing so. The breadth of their service offering will protect them from the decreasing revenue streams accumulation specialists will encounter as boomers draw upon their accounts to produce income. We believe this transition is so important we have partnered with CEG Worldwide to make available a customized version of their "Cultivating the Affluent" coaching program to help our advisors make this transition.

What's the response been like? We basically subsidize the cost of that program for our advisors to attend. It's a year-long program and we can only take 30 at a time. The first group started in March 2006, so they're about 15 months removed from it now. They're seeing fantastic success.

What is Omaha, Neb.-based Securities America doing to help advisors shift into the distribution mode?There's a lot of philosophical talk about needing to get ready for this business, but at the end of the day, what advisors are really craving is actual tools and strategies to help them manage the discussion of how to provide that paycheck to their retired clients. That's what we've tried to do. It's very practical: how you actually set up the accounts, what products you use to set up the income.

So what's in the tool kit?Our advisors have repeatedly expressed their frustration concerning the lack of tools that have been provided to them by the industry to assist the boomer market. So Securities America's focus has been on developing tools that advisors can use right now to serve their clients. We call these tools our NextPhase solutions because they help clients move from accumulation to the next phase: distribution.

The most widely accepted tool we have introduced to our advisors is the Reliability of Income Profile. This profile presents a ground-breaking way of thinking when it comes to risk profiling. For years, on the accumulation side, we have attempted to measure a client's ability to tolerate volatility in their portfolio and we have constructed portfolios accordingly. But as boomers move into distribution, we need to recognize that measuring a client's ability to tolerate volatility in their income stream is just as important. This is the first tool in the industry that provides a methodology for determining a client's need for guaranteed income and provides guidance to an advisor as to what portion of a boomer portfolio needs to be dedicated to a guaranteed income source such as a VA GMWB or SPIA, and how much should be allocated to non-guaranteed sources.

How does that work?It's a 17-page questionnaire. It's different from a normal risk questionnaire, which in the accumulation phase determined how sensitive an investor was to volatility. "If you're really aggressive, maybe you'll put 100 percent into equities," that kind of thing. However, the normal questionnaire is really only appropriate to accumulation, so we've taken that same mindset to distribution. Now, investors are concerned with the risk of fluctuation in the income stream, and that's what the profile measures. We announced it in June and can't keep it on the shelves.

What else have you come up with?Securities America has also created the Imagine...Your Life Without Limits book to get boomer clients talking about their most closely held dreams and goals. We are also offering a corresponding training course called "Painting Your Client's Retirement Portrait." This course teaches advisors how to best use the Imagine book during client interviews. As clients move into the next phase of their lives, they are most certainly concerned about their money, but they are also interested in adding more meaning to this phase of their lives. This cutting-edge personal reflection tool will help advisors initiate better conversations with their clients.

Securities America has also worked closely with our long-time partner Wealth2k to develop an enhanced proposal system for the Income for Life Model. Our advisors have always raved about the Income for Life Model video and other marketing materials explaining how to best structure a time-segmented distribution portfolio. However, they came back to us and requested a more robust and flexible proposal system for illustrating the concept. Based upon that feedback, Wealth2k has worked with us to develop one of the top income-distribution proposal systems in the industry. We recently announced the enhancements at our national conference and our representatives were ecstatic.

What about advisors who are still getting their heads around the boomers retiring?Although our focus was on cutting-edge tools that advisors could use, we also produced some philosophical tools. We developed two white papers -- one on income distribution strategies, one on 72t distributions -- aimed at helping our advisors understand the changing landscape and possible solutions. The income distribution strategies paper has been particularly well-received by our advisors as it compares the historic success rate of three different distribution strategies and provides guidance on how to use them: systematic withdrawal, variable annuity with GMWB and a time-segmented allocation.

Why are these types of tools and insights important for advisors?The boomer demographic is the first where the bulk of their income will need to come from assets they have saved as opposed to employee pensions. It is imperative that the advisor deliver the best advice possible. Education and documentary tools are imperative to help advisors secure their practice in a highly litigious society. They must operate in a "hindsight is 20/20" world with a keen sense of how the advice they give today will be viewed in the future by regulators and plaintiffs' attorneys.

How does this play into Securities America's overall strategy?We really want to be recognized as a leader in the broker-dealer industry on this issue. This is very much filling a gap the reps have had with tools they can actually use as they're taking that jump, and not just philosophically talking about how big the opportunities are or how big the potential market is. It's true, there is a huge opportunity in this market, but it's also a huge challenge, and the costs are going to be so great if we don't address it properly. Advisors really do need to educate themselves on the nuts and bolts of what's right for their clients. The boomers are absolutely dependent on it, and if we fail, it's not going to be good for either the country or the business.

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Robert Scott Martin is a New York-based contributing editor of Research.

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