Income Planning Means Back To School For Advisors

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To be effective in income planning with baby boomers, financial advisors need to be educated on income issues, say experts in the field. In fact, they say, this education is a must-have, not a nice-to-have.

Computer programs do a good job with financial modeling, concedes Andrew Beierwaltes, a financial advisor with AXA Advisors in Chicago. But they dont tell how to do the distribution of assets. Thats where you need product knowledge and professional education.

In Illinois, for example, public school teachers have good pensions, Beierwaltes points out, but they still need information on retirement planning.

As they retire, he explains, these boomers face increasing health care costs, so more of their money will go toward taking care of themselves when they are older. In addition, they will face decreasing health care benefits plus increases in premiums.

That means, even with their good pensions, teachers need the advice of a trained professional, Beierwaltes says.

Many advisors have not yet learned the ropes of income planning with baby boomers or anyone else, says Byron Udell, founder and CEO of AccuQuote, Wheeling, Ill.

A lot of advisors have spent their entire careers selling accumulation products, he explains, and that is what they are comfortable doing.

But today, says Udell, many of their boomer clients are entering, or about to enter, the stage of life where they really need to focus on retirement income planning, not accumulating

To help these clients, accumulation-oriented advisors need to get educated on income planning and income options, he contends. If they dont, they risk losing their clients, he says.

To illustrate the power of education, Udell tells what happens when he is in a competitive situation on an income plan. He says that if the client buys into a misleading statement made by the competitor, I always say, Put us all on the same phone call, and let me respond. The competitor always backs down, he says, so he never gets a chance to defend his proposal in that manner. However, he adds, I often win [the account]because Id never make an offer like that unless we had the better product or program.”

The bottom line, he says, is “if an advisor is truly educated in this field, the advisor will win.”

Convincing boomer clients to do income planning is not always a piece of cake, however. Experts say boomers can be tough to reach on this subject.

For example, Jason Ford, unit sales manager of Bankers Life and Casualty in the Little Rock, Ark., branch office, says he prefers to start income planning by discussing long term care needs (and insurance), if the client has not funded already for that exposure.

Yet “it took me a year and a half to convince one man to buy an LTC policy,” Ford says. (The wife was more receptive: She bought an LTC policy after talking about it for 2-3 months.)

Both clients are boomers, in their mid-50s.

Similarly, Ford says, before the stock market crash of the early 2000s, he was able to sway the wife to start income planning by moving money out of equities and into fixed financial products having guarantees. However, he was never able to convince the husband to do the sameand the mans investment value subsequently plunged in the crash.

Ford attributes the initial resistance to income planning to the fact that people have focused on accumulating assets for most of their adult years. That was the case with the couple mentioned above. This awareness has made him determined to start discussing income planning with clients when they reach age 55 or so.

“Thats when I start talking with them about how it is time to start shifting from accumulation to retentionthat is, to retaining everything theyve accumulated during the working years.” He emphasizes the importance of trying to retain as much as possible”because they might live in good health to age 95 or more” and so will need their money to fund all those retirement years.

In most cases, this transition should happen gradually, say by moving 20% or so a year from equities into fixed instruments or some other percentage, Ford says. “The goal is to set things up so the person will have an income stream for life, without ever worrying about fluctuations in the stock market.”

Still, he says, “you have to convince boomers to look at thisto see themselves at age 65, 75, 85 or more.”

Sometimes, doing this convincing is like trying to sell life insurance to an 18-year-old, Ford laughs. “A lot of boomers think they are invincible, and they think that if they do die, it will be in bed with their boots on.”

The key to helping boomers address their income planning needs, he maintains, is building up trust with the clients over a period of time.

“This is not a one interview kind of thing,” he says. The advisor needs to establish a solid relationship with the client and a record of “being out there, helping them to protect their assets” and to achieve their financial goals.

Boomers are savvy people, he adds. That means the advisor needs to “focus on providing good, straightforward information over time.”

The advisor might start out by asking what amount of income the person wants to live on in retirement, suggests Paul Morris, senior vice president of the agency department at New York Life. “Show them the numbers, and provide some gentle nudgingPoint out that, you need to continue to provide for yourself in the future.”

Also, he suggests, remind them that people are living longer and that they may not want to rely on their children to take care of them.

The discussion often leads to choosing products to implement different parts of a plan. Some, like Ford, prefer to start with LTC insurance if the person is a boomer. He emphasizes that it is better to buy this coverage when the person is younger and still healthy. “Its more affordable then, and they can generally qualify,” he says.

To ensure an income stream, a single premium immediate annuity is a good vehicle to consider, suggests Morris. And to protect against market risk, the advisor can choose a fixed annuity and very conservative mutual funds, he says, stressing that trained reps will be able to choose solutions appropriate to their clients.

“It is an art to structure these portfolios,” contends Beierwaltes of AXA Advisors. Advisors need to know about the income tax ramifications of liquidating assets, for instance. “They need to know which assets to liquidate first and what approach is best for people in high tax brackets and lower tax brackets.”

Advisors also need to know how the products they choose really work in such a portfolio, Beierwaltes continues. For example, they need to know how and when to recommend policy loans from life policies or to transfer assets into an annuity.

“There are so many variables, you need experience and training to do this correctly,” he says. Therefore, firms should not have first-year advisors do the income plans, he suggests. Instead, these less experienced advisors should team up with someone who has experience. It also helps if the advisor has the deep support of the issuing companies, he says.

Retooling to do income planning does take time and effort, concedes Udell of Illinois. If an advisor says he or she doesnt have time for that, “it doesnt make sense,” he says. “If theyve committed to being the best, theyll read everything they can get their hands on.”


Reproduced from National Underwriter Edition, May 21, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.