Editorial Director Jamie Green caught up with Politzer to discuss the survey's findings and the broader issues of advisors during an al fresco lunch in Chicago in late June.
What are the main forces of change these days for advisors and the regulatory world they live in?
How will the world evolve? What are the catalysts for change? Will there be more or less regulation? More. Will there be more or less transparency? More. Will there be more or less silo regulation of insurance and securities? Less. These will be the environmental factors, plus the need for retirement income, that will be the catalysts for change.
And what about the skills that advisors will need for working with people nearing retirement or already in retirement? Do they have them?
People consolidate relationships--from about six while they're in the working world to two [in retirement]. That relationship with the intermediary moves away from the products to a more holistic relationship.
But what's the added value that the intermediary brings? It's the knowledge, the planning component, not the delivery of the product. Retirement income planning is not a do-it-yourself job; the stakes are too high.
This is a unique challenge for any advisor: at 65, with a pool of assets that has to last for 30 years, and [deal with] inflation, but still produce monthly income. Where do you invest? Bonds, equities?
We believe that an annuity product [guaranteeing income for life] is good for 20% of that fixed pool, and the advisor finds alpha elsewhere. Match fixed expenses with fixed income, and fill in the gap with an annuity.
Many advisors, particularly fee-only ones, reject annuities because of their expenses and lack of transparency.
Advisors formulated their views on annuities a long time ago, forming rational beliefs that were accurate then, but no longer. They're still in a paradigm where they're looking to beat the indexes.
Let's talk about regulation. Treasury Secretary Paulson's Blueprint for reform talks about an optional federal charter for insurance companies. Think that's likely?
Like the levees, when these things go, they go. Chances are better now than ever that it [a federal charter for insurance companies] may happen.