From the November 2007 issue of Investment Advisor • Subscribe!

Conversation Obligation

Involving the client in retirement planning helps grow advisors' business

Financial planners want products and services that will facilitate discussions regarding retirement income planning with their clients, according to a new Financial Planning Association study on planners' attitudes about retirement income.

The study--Financial Planner Attitudes and Perceptions about the Retirement Income Distribution Market--was sponsored by Fidelity Investments and produced by the Diversified Services Group, Inc. in June 2007, and surveyed over 750 FPA members. The survey found that financial planners understand the potential of retirement income planning for their businesses, and almost half (47%) of the respondents expect that between 10% and 30% of their growth will come from serving retirement income and planning needs. To boot, over the next year, more than half anticipate that at least 25% of their new clients and assets will come from IRA rollover activity alone.

The study also found that a majority of financial planners' clients are already retired, and that number is expected to accelerate over the next five years, significantly impacting advisors' time and resources as clients start to focus on income distribution over asset accumulation. From a revenue standpoint, planners who charge a fee based on assets under management or custody are likely to find themselves spending more time working for clients who generate less revenue. This may favor the trend toward a "fee-for-service" based model. Advisors are already anticipating this trend, with more than 40% expecting their fees for service to increase as clients continue to retire.

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"The resources financial planners value most--in light of the increased retirement income business--are ones that enable and facilitate their communication and conversations with clients," said Nicholas Nicolette, president of FPA, in a statement. "Planners recognize that these resources are key to facilitating the conversations that allow them to better align their financial planning services with their clients' needs while increasing the proportion of client assets that they oversee."

Sparking the Conversation

Speaking of communicating with clients, the research also shows that the "conversation with the client," which refers to the series of interactions the financial planner has when his or her client is fully engaged in the retirement income and planning discussion, is a major step in the planning process.

Eighty-six percent of planners surveyed selected "Financial Planning" (comprehensive review of assets, income stream, objectives, expenses, etc.) as the primary way in which they engage their clients in the retirement planning discussion. This process involves consolidating the variety of assets accumulated over the years into a more manageable format and provides a good overview of a client's financial position.

"The effectiveness of these financial planning discussions can be seen in their impact on the level of client investment," the report reads. In fact, the percent of financial planners reporting that they manage or direct more than 75% of client assets more than doubles, from 32% to 71%, as a result of these retirement planning conversations.

"The simple fact is that millions of Americans rely on advisors for retirement planning, and that number will likely increase as the Baby Boomers begin to shift their focus from accumulation to distribution in retirement," said Fidelity Senior VP Gary Gallagher in a statement released with the report. "This study reveals that planners see the wave of retirement income planning business coming and they are looking for the resources to help them meet the needs of their clients and establish a growing and profitable practice focused on retirement income planning."

The study found a high percentage of planners are considering a selective expansion of their professional networks. Accountants and other tax professionals, along with lawyers, are the most likely partnership candidates, with nearly 50% of financial planners either already in a partnership or very likely to partner with these professionals over the next 12 months. Also, when asked what planners view as their clients' greatest risks, health care expenses (83%), outliving savings (75%), and withdrawing savings too quickly (74%) rank highest.

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