Catch Up

There has never been a time when retirement planning represented such a challenge–and an opportunity–for advisors. Let’s look at the facts. While it’s true that the majority of advisors have done a great job helping their clients accumulate assets for retirement, it’s also true that the bulk of advisors are still stuck in the accumulation phase, and are woefully unprepared to help retirees–particularly baby boomers–manage the distribution of those assets. The first challenge for advisors is to admit that they lack the know-how to help retirees manage the income phase of retirement, industry officials and even many advisors themselves say. Then they must take the necessary steps to educate themselves. “Advisors need to know what they don’t know,” says Kevin Seibert, a CFP and managing director of the International Foundation for Retirement Education (InFRE) in Lubbock, Texas. “Retirement income management is complex–there are lots of moving parts.” The background advisors have as a CFP or tax or insurance advisor “is applied in a different way” when planning for the distribution phase as opposed to the accumulation phase, he continues. “It’s not business as usual. You can’t keep doing what you’re doing and expect to have the results you’re looking for in making sure clients’ money lasts as long as they do.”

Indeed, some advisors–particularly those with smaller practices–acknowledge that serving retirees is a new ballgame these days, as the four advisor profiles on the following pages show. Some advisors are even finding it necessary to specialize in retirement planning, like Mark Carruthers in Garnerville, New York (see profile) because so many clients are looking for help in figuring out how to fund their retirement. Planner Lois Carrier admits the advisory profession “doesn’t have a lot of experience with distribution” of assets, and that’s not due to a lack of intellect. It’s merely because, historically, clients have been able to rely on defined benefit plans and Social Security to help fund their retirements. (For more on the history of retirement, see the timeline.) Today, however, with DB plans going extinct and the longevity of Social Security in question, the emphasis is on 401(k) plans and IRAs and other methods to fund retirement, she says–so finding ways to produce retirement income is paramount.

Helping baby boomers meet their income needs will be particularly challenging for advisors because, as Dallas Salisbury, president of the Employee Benefit Research Institute (EBRI) in Washington, D.C., says boomers are entering retirement with more mortgage debt and general debt; boomers have less retiree health care paid by third parties; and they have a lower probability of having annuity income from a former employer. Plus, he says, “They are entering retirement with a much higher lifestyle relative to their income than the [previous] ‘silent’ generation.”

So addressing shortcomings in managing retirees’ assets is a necessary undertaking if advisors expect to retain their current clients–and pull in new ones. The good news, according to Seibert, is that more and more advisors are getting InFRE’s Certified Retirement Consultant (CRC) designation and other specialized training because they recognize that retirement income management “is an area that deserves some specialization.” For an advisor “who’s going to be retirement specific, or who has the CFP and [whose practice] is going to be more retirement oriented, [is] a good fit for the CRC credential,” he says.

Opportunities and Dangers

Jerry Kenney, vice chairman of Merrill Lynch, laid out the opportunity for advisors to serve the retiree market in his recently released study, “Seizing the Retirement Income Opportunity,” and when he addressed attendees at the Retirement Income Industry Association’s (RIIA) recent conference in Boston. (RIIA also plans to provide a retirement specialist credential for advisors, but Seibert says it’s too early to discern whether it will be the CRC). Kenney noted that between 2000 and 2020 there will be a dramatic rise in the number of retirees. In 2011, the first wave of boomers–3.4 million people–turns 65, and by 2020, 30% of the population will be in retirement, Kenney said. Also, by 2020, 67% of U.S. financial assets held by individuals will be controlled by retirees and pre-retirees. Kenney also warned advisors that despite the fact that baby boomer retirements will peak in 15 to 20 years, advisors must act now to build relationships with pre-retirees.

Salim Ramji, a partner at McKinsey & Co., and co-head of the consulting firm’s retirement area, echoed Kenney’s sentiments at the same event, adding that consumers begin to seek advice five to seven years before retirement.

There is some good news for advisors, according to Kenney’s research, such as the fact that 80% of retirees will seek advice from a personal advisor rather than turning to the Internet or financial books for help. Ramji added that the competitive playing field for retirement dollars is still wide open, so if advisors jumpstart their efforts to serve retirees’ income needs now, they can snag a sizable portion of this market.

However, if advisors fail to shift their expertise from the accumulation phase to the distribution phase, Ramji warned, they’ll start losing clients to online brokerage firms like Fidelity and Schwab.

Research by McKinsey found that “leading up to retirement, consumers are willing to switch advisors to get the advice they are seeking,” he said. Seibert of InFRE (www.infre.org) knows this from personal experience. Before joining InFRE, he lost a client who’d been with him for 10 years “because while I did a great job helping him accumulate assets, when it got to the point of him retiring and he was asking good questions, because I hadn’t focused on retirement income management, I didn’t have good answers.”

Being educated about retirement income planning isn’t just a defensive strategy, Seibert notes, it also helps advisors show they’re adding value for younger clients. “Managing risks that a retiree has–which include healthcare, inflation, and market risks–can actually start before retirement, so advisors need to start focusing on, and managing, those risks before clients’ retirement,” he says.