A report released by GDC Research and Practical Perspectives on Thursday studied the relationship between advisors and product providers, like asset managers and insurance companies, and found opportunities for those providers to help advisors serve their clients better.
Advisors understand rising interest rates will have an impact on their clients’ retirement income, but the industry hasn’t accepted a common methodology for addressing that issue, the report found. That makes it difficult for product providers to address advisors’ needs.
Indeed, fewer than 20% of advisors said they were highly satisfied with the support they were receiving from asset managers or insurance companies on retirement income strategies. With more than 70% of advisors serving a greater number of retirement income clients, effective support is important.
“There is significant demand for solutions that advisors can use with retirement income clients,” Howard Schneider, president of Practical Perspectives and co-author of the report, said in a statement. “Managing portfolios to achieve the multiple goals of retirement clients is a critical and growing element of most practices. Yet the delivery of retirement income support remains highly customized and nuanced, making it hard for product providers to gain focus and traction in this marketplace.”
The report found there are three main methodologies for advisors when it comes to retirement income for their clients: risk-adjusted total return, pooled or time segmented, and income floor. Although the risk-adjusted total return method was most widely used, advisors who use the income floor method reported the highest level of confidence in helping their clients meet their income goals.
Securities-based products like actively managed mutual funds, ETFs and individual securities were more popular among advisors than annuities, with mutual funds the most popular among those, according to the report.
Although advisors named several large firms that they use for products for their retirement income clients — Jackson, BlackRock, Prudential, American Funds, Franklin Templeton, Lincoln Financial and PIMCO — the report found advisors associate these firms with generic annuity and advisory solutions rather than dedicated sources of retirement income solutions.
“Advisors rely on a range of products for retirement income clients, with larger annuity carriers and asset managers among the most prominent providers,” Dennis Gallant, president of GDC Research and co-author of the report, said in a statement. “Few firms are singled out by advisors as leaders in retirement income delivery. This underscores the opportunities and challenges that product providers face in helping advisors serve retirement income clients.”
Among the qualities advisors look for in a product provider are the level of fees or charges, interest rates and yield, and the firm’s financial stability. When asked what features they’d like to see in specific products, advisors suggested greater simplicity, more liquidity and a better focus on generating income or cash flow.