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The Rising Need For Comprehensive Retirement Planning

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Financial professionals meet the needs of the retirement market by providing client services–e.g., education, advice and planning–and selling investment and insurance products.

The clients benefit when the advisors guide them through the process of deciding when to retire, how to finance the rest of their lives, and how to best prepare for unforeseen financial events.

Advisors and the institutions with which they do business profit mainly from product sales and asset management. They do not typically derive significant profit from education and advice. Yet, those advisors who provide in-depth retirement planning are very likely to garner product sales, according to as yet unpublished research done by LIMRA International, Windsor, Conn., in 2006. The process entails the advisor taking several steps, as follows:

Build and strengthen relationships. Comprehensive retirement planning necessarily entails a detailed review of clients’ entire financial situation (assets, income, debt, employment, etc.) as well as their goals, plans and concerns.

Become a trusted PFA. Such intimate discussions are more apt to occur under conditions of trust. Advisors should therefore strive to be considered personal financial advisors (PFAs) by their clients, signifying a deeper, longer-lasting relationship with their clients.

Forging relationships with clients as early as possible, conducting annual review sessions and growing one’s knowledge and skill set to encompass retirement issues, will position advisors for helping clients when they ultimately retire.

In the LIMRA survey, nearly half (47%) of consumers ages 50 to 70, with at least $50,000 in household financial assets, claim to have PFAs. Retirees were more likely than pre-retirees to have PFAs (50% and 42%, respectively). It is possible that many retirees who did not have PFAs prior to retiring realized that they could use some help after retiring. While having a PFA is strongly associated with household investable assets, 42% of millionaires surveyed do not have PFAs.

Create formal, written plans for management of income, assets and expenses in retirement. It is unlikely that individuals will manage these areas without advisors helping them through the process.

Naturally, many people do perform some planning activities on a piecemeal basis–for example, estimating their retirement income or expenses. But, the research indicates that only a minority have gone on to establish a formalized strategy. About one-quarter (23%) of survey respondents claimed to have a formal, written plan and another quarter plan to create one in the future. More retirees (27%) had financial plans than pre-retirees (16%), but pre-retirees were more likely to say they plan to develop them in the future (44% vs. 13%).

Who created their plans? Two-thirds (68%) of retirees and 84% of pre-retirees indicated their PFAs created their plans. Many retirees whose PFAs did not create their plans probably had different advisors create their plans at some point prior to working with their current PFAs.

Implement and monitor the plan on an ongoing basis. This is the final key step. Two-thirds (68%) of those whose PFAs created formal, written plans for them said they purchased insurance or investment products as a result of the plans (see pie chart).

The likelihood of product sales was consistent across household financial assets levels, suggesting that marketing opportunities are not limited to the wealthiest clients. Moreover, ownership of investment and insurance products is strongly associated with having a formal written plan (see chart).

Higher asset levels were associated with product ownership, but when controlling for asset levels, ownership of mutual funds, deferred and immediate annuities, and long-term care, insurance was still higher among those with formal written financial plans and those with advisors.

As more people reach retirement without adequate preparation, the need for advisors to provide planning will escalate. As this research reveals, advisors stand to gain by establishing relationships and comprehensive retirement plans that can in turn help to position product sales.

Matthew Drinkwater, Ph.D., FLMI, PCS, is assistant managing director-retirement research at LIMRA International, Windsor, Conn. Eric T. Sondergeld, ASA, CFA, MAAA, is director of retirement-private client channel marketing, BlackRock, Inc. Princeton, N.J. Their respective e-mail addresses are: [email protected] and [email protected].


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