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For the last few decades, financial advisors have gotten to be very good at wealth accumulation. It’s what you do. It’s where you live. But guess what? Your job description is about to change — a shift fraught with challenge and opportunity.

With baby boomers marching into retirement, the conversation today, and for years to come, will focus on retirement income distribution planning. It’s a strange new landscape for both advisors and firms who are only now beginning to develop products, solutions, even a vocabulary to wrap them in.

As Kevin Hart, president of Sun Life Financial Distributors, puts it: “An evolution in the advisory business is occurring right now; it’s undeniable. It’s clear from research that Americans really want to engage in conversation about distribution and income, yet most advisors are still focusing on accumulation. For a lot of people, this is a brand new language. The whole industry is challenging itself to get in front of this.”

It looks like a pretty tough learning curve.

“The conversation has to change from alpha hunting to risk management, withdrawals and spending,” notes Moshe Milevsky, a finance professor at York University in Toronto and one of the world’s leading authorities on retirement-related finance issues (and monthly contributor to Research). “It’s almost as if advisors have to relearn finance from the beginning. Instruments and strategies that made absolutely no sense when accumulating wealth suddenly make sense.”

With life spans lengthening and pension plans drying up, the situation has led to a rethinking of strategies and solutions as companies search for the new holy grail in longevity protection: the personal pension.

“It’s all going to be structured around lifetime income with guarantees that keep up with the cost of living. Everyone is going to be trying to replicate the defined benefit pension,” says Milevsky. “If it looks and smells and feels like a pension, it’s going to make sense to people.”

Experts say muni bonds, laddered bond portfolios, real estate investment trusts and high-dividend paying stocks will likely be nudged from prominence by a host of other emerging products. Among them: new and improved annuities, structured investments and combination products that mitigate more than one risk [life insurance and long-term care insurance, as an example.]

The non-profit Retirement Income Industry Association, just over a year old, also reports that it’s possible, and perhaps probable, that new business models will emerge over the next few years.

“There’s a great deal of intensive study going on in all manner of organizations and they are being faced with a major decision: Do they want to make small and incremental changes to the business model or will a new business model be required to exploit this opportunity? You could argue that you will need new ones to exploit it fully,” according to David Macchia, an RIIA director and president and CEO of Wealth2K, a financial services marketing organization.

Dan Veto, senior vice president of the think tank, Age Wave, believes the transition to retirement income distribution represents a “fundamental change in the job of the advisor.” In fact, Age Wave in March launched Retirement Bridge, a web-based tool designed to help advisors have more meaningful conversations with clients about retirement income planning. Among those first to sign up: LPL Financial Advisors, HSBC Bank and Thrivent Financial for Lutherans.

Veto says the shift to retirement income distribution represents a challenge not only in product knowledge, but in compensation and the client relationship itself.

“This is not a trivial transformation. In the wealth accumulation phase, advisors are paid to grow assets under management. This notion that I’m going to work with a client to decrease their assets goes against their very nature. In many cases, there are negative compensation consequences,” Veto notes. “Someone needs to crack the code on how to properly incent advisors.”

Meanwhile, as a result of baby boomers redefining retirement, the advisor-client relationship is due for change.

“This life stage today is so incredibly complex. The notion of opening a 529 for someone who’s 50 may be a legitimate product to consider. It’s just very difficult to wrap your head around. Retirement distribution planning, if you really do it well, means that the conversation you’re going to have with a client at 9:30 will likely be very different from the appointment you have at 2:30. And that’s tough,” Veto says.

“Any advisor will be well served to at least have a fundamental knowledge of different products outside their own asset accumulation sweet spot. There’s enormous risk — and opportunity,” he adds. “Those that can figure it out will do tremendously well. For those that don’t, it won’t be long before they’re fading into the distance.”

Rethinking Annuities

Not surprisingly, the insurance industry is out front with the first generation of revised income-guaranteed product solutions. Fees are becoming more transparent and, in some cases, cheaper. There are immediate annuities that now pay advisors a trail. And, responding to the needs of baby boomers for more flexible annuity income, annuities are being re-engineered.

Sun Life Financial, for example, in March introduced Income ON Demand, the industry’s first-ever income storage benefit. The option combines the availability of annual withdrawals with the flexibility to store that income for future use.

Lynne Ford, who directs the retail arm of Wachovia Securities’ retirement planning group, calls the shift to retirement income distribution “the single biggest opportunity out there in decades.”

According to industry research, only 20 percent of advisors routinely use annuities, a statistic that Ford and many others expect to trend upward as companies produce annuities that are more market-friendly.

“As a product line, the annuity hasn’t had the breadth and depth it needs and annuities have struggled with the legacy of negativity in the press,” Ford says. “But you are seeing insurance companies stepping up to the plate and looking at alternatives. We’re right on the cusp of this.”

Retirement income distribution specialist Briggs Matsko, an advisor with Lincoln Financial Advisors in Sacramento, has long recognized that traditional asset allocation models don’t take longevity risk into account. Thirty percent of his clients are annuitized through a process-led approach that considers his clients’ “core” and “joy” expenses, among others.

“The products are just arrows in the quiver, solutions to problems we uncover in the process. There’s been so much negative press about annuities. The industry needs to do a better job of calling them what they are: private pensions, income streams you cannot outlive,” says Matsko, who has over $300 million in assets under management. “They are one of the products of choice when mitigating longevity risk. In fact, it’s the only choice — I’ll go that far.”

John Lynch, a Wachovia Securities advisor in Columbia, Md., works exclusively with lump-sum recipients. Three years ago, he began using variable annuities.

“With life expectancies going up, it’s becoming more of an issue. Also, interest rates are going down so bonds aren’t the vehicles to get that guaranteed income that they once were,” says Lynch, who has $500 million in assets under management. “I would have to say I have had to get more comfortable with annuities. My initial gut reaction is: We hate them, right? They’re too expensive. But I’ve come to realize that guaranteeing someone they will never run out of money is worth paying for. That’s where I had to come around. Annuitization is, I think, a big issue.”

Education Is Key

Part of the problem with annuities, and structured products as well, is that they are complex. They can be tough to understand — and hard to explain. In recognition of that, industry players across the spectrum are aggressively mounting educational and training initiatives to help advisors learn the language of longevity protection.

In March, Incapital, a distributor of fixed-income securities and structured products, launched a new website, The website, targeted at financial professionals and individual investors, is designed to demystify structured products, derivative-linked instruments that link fixed-income notes and CDs to the performance of equities or other assets.

“What we’re hearing is that advisors need a lot more market education, a lot more comfort on the pricing and a lot more comfort on the secondary market. Our mission is to raise the comfort level on those three categories this year,” notes Tom Ricketts, Incapital’s CEO. “What we’re trying to do is make available more choices for investors.”

Typically, structured products have been used as accumulation instruments but Milevsky and others believe they will “take the leap soon” as income vehicles. As he puts it: “I’m not going to dismiss derivatives. The whole notion of derivatives sounds mysterious but that doesn’t mean we rule it out. It’s just that a higher level of diligence is required.”

As for annuities, Milevsky observes: “What’s happening is people are realizing the best and most successful way to sell an annuity is not to mention it’s an annuity. At the very least, you should be looking at the specifics, before discarding it out of hand.”

Sun Life Financial is pulling out the stops when it comes to training advisors about the benefits of annuities in the context of a retirement income distribution conversation with clients. In a new initiative, the firm is working with broker-dealers to design a curriculum in a format advisors can better relate to.

“The advisor talks in terms of ‘alpha,’ ‘alpha engines,’ ‘alternative investments.’ We need to use those words, their vocabulary,” says Hart.

As an example, Hart points to industry research that queried annuity-averse financial advisors as to why they don’t use annuities.

“When we ask advisors to rate the issues they focus in on with their clients, they are exactly the issues variable annuities [address]. They talk about investing within a horizon challenged by inflation, the potential of running out of money, longevity, trying to build in protection against risk. These are exactly the issues we solve to, but we use words like ‘annuitant,’ ‘annuitization,’ ‘withdrawal benefits,’ ‘death benefits,’” Hart adds. “Advisors don’t understand annuities. There’s this disconnect because they’re accumulation specialists and they speak a unique language. If they understood them, we believe they would use them more.”

Last year, Wachovia Securities launched a program called Mastering the Business of Advice. Ford reports that the curriculum on retirement, with income planning embedded in it, is one of the “hottest” tracks.

“There are different stages of learning: unconsciously incompetent, consciously incompetent and consciously competent. We’ve squarely, as an industry, moved into the consciously incompetent space. And that’s very positive,” says Ford. “That means we can move on to the consciously competent stage where the advisor is now invested in his own development and education and product providers have reached a point where strategies and innovation have begun to emerge. I’m optimistic.”

For those advisors who fail to become pro-active, Ford has a cautionary note: “Fast-forward five or 10 years and advisors will have stories of clients who have run out of money. Someone will have spent too aggressively, drawn down faster than they should have, lived decades longer than anticipated. To date, you don’t have those stories. As they begin to emerge, advisors will be looking for insurance policies to help their clients. Just like insuring against fire and theft, insuring your income stream is going to become a mainstream strategy.”

Ellen Uzelac is a Chestertown, Md.-based freelance writer and contributing editor of Research.