Income Planning Starts To Gain Traction
When it comes to income planning, financial advisor Richard Tanner says his firm focuses on bringing clarity to clients about what their financial independence needs really are.
The founder and president of Ownership Advisors of Cleveland, Ohio, Tanner is among experts National Underwriter interviewed on new trends in income planning strategies and products.
The main thrust right now is on “education, training and planning tools,” says William Borden Ayers, a principal of Diversified Services Group, a Wayne, Pa., consulting and research firm.
As of yet, he says, there is no universal buy-in about what income planning means, so financial industry leaders are looking at ways of raising general understanding about it. “They want to help people see that “its not how much you save but how you develop a tax-efficient income for the 30-40 years youll spend in retirement.”
Some people think income planning just means managing money, Ayers notes. “But it is not just managing money, nor is it a passive activity,” he says. It entails a different set of rules and produces a different set of solutions than are involved when people are accumulating money during the working years.
“Its a holistic planning process, and it takes a lot of work to do it right,” he says.
To help raise awareness, industry firms have been increasing their education and training activities as well as looking for tools that will help advisors and clients develop their income plans. To have an effect, those tools need to be simple and also provide objective assessments, Ayers stresses.
Massachusetts Mutual Life Insurance Company, Springfield, Mass., is among firms having such a tool. It plans to roll this out in the 4th quarter as a value-added service, available for no charge to the client.
This is a software tool that provides “user-friendly” stochastic modeling, running off of the MassMutual administrative system. Advisors can input data into it about a clients assets, timeline, risk tolerance and other factors, says Terri Forde, senior vice president of MassMutuals Retirement Savings Products Division. The system then constructs models for the customers income stream using annuities, IRAs and mutual funds.
Targeted for use with clients age 50 and up, the tool will show the effect of different product combinations and assumptions, Forde says.
MassMutual decided to develop this service because the income planning discipline is still very new to advisors and clients, she says. “The challenge they are facing is to shift from accumulation to income generation. For them, there is real value in figuring out how to convert assets to income.”
People today are facing greater longevity than ever before, Forde points out. As a result, people need not only an income stream for life but also some money that remains working in investments.
That means they also need more than one product solution, she continues. This is why MassMutuals tool reflects use of mutual funds, IRAs and annuities. “It shows people where to start and how much to put into each area.”
The company has found that people need advice in these areas. The system enables the advisor to provide this advice. The agent receives the standard compensation on the products sold.
Because this area is so new, the firm has decided to pilot test the system first before full rollout. It will also provide training and education for advisors on how to use it.
Tanner, the Cleveland advisor, is a big advocate of client education. Many clients just dont know what they need for retirement, he explains. Further, if they do have ideas in this area, often husbands and wives do not agree.
Generally speaking, the spouse who is the main wealth creator for the family tends to be more informed, Tanner says. “But how can you do effective planning if you do not have understanding and agreement between the two?” Without that clarity, he says, the process will end up being “very crudesomething like looking at the couples expenses and building from there.”