A question surfacing among income planning experts is just how prepared advisors are to meet the needs and challenges of this relatively new area of financial advice.
Advisors are hungry for information about income planning and, if polled, they would say they don’t feel completely expert in the area of retirement income planning, according to Terry Mullen, president and CEO with Lincoln Financial Distributors, the wholesaling distribution arm for Lincoln Financial Group, Philadelphia.
“I don’t believe it is a lack of preparedness. The issue is a lack of addressing the issues on customers’ minds. It is a failure to recognize what clients want,” says Michael Tessler, president of Brokerage Unlimited in St. Louis.
While money management is probably the number 1 reason that clients work with an advisor, “reasons number 2, 3 and 4 are not miles behind number 1. They are inches behind number 1,” he says.
Income planning, Tessler explains, is a big category, so there are other things that it touches including the growth, protection and the transfer of money.
What will bring the issue to the fore, he continues, are clients who will want to discuss how they will have regular income in retirement. That need will increase, Tessler says, because of demographics. He points to trends such as the wave of boomers approaching retirement, the type of lifestyle they want to live, the fact that they want to retire earlier than their predecessors, and the fact that more people today will live longer than earlier generations.
Products are currently available to develop income plans, Tessler says. But, “if you go to most firms, SPIAs are not on the recommended list; they [advisors] hate them and yet, SPIAs could be a help.” The reason for the dislike is that that product locks in for a long period of time, he says.
Life and long term care insurance sales are a small portion of the products sold by most broker-dealers, he points out. This could suggest that protecting and transferring wealth is not being looked at as part of the income planning process, he indicates.
Mark Konen, president-individual markets with Lincoln Financial, says that what many people are in essence doing, in terms of income planning, is to save on their own and self-insure their regular retirement income. What they are not taking into account, he says, is the possibility of a major illness or a stock market correction that will impact that income.
“Advisors are getting better educated and prepared,” says Christine Marcks, president of Prudential Retirement, a unit of Prudential Insurance Company of America, Newark, N.J. “There has been such a focus on accrual, but now there is starting to be a linkage to decumulation.”
Consequently, she says, this shift among boomers to income need is an “advice event.”
There are some advisors that are focusing on helping clients create streams of income during retirement but “that is still probably a fairly small number,” continues Marcks. However, she notes that the number is growing.
Marcks discussed the future of income planning during a presentation in which Prudential Retirement officially announced a product feature within a defined contribution product that the company says guarantees a base income starting at retirement while allowing the plan participant to maintain control over assets.
In the future, Marcks says that much of the growth in annuities that provide income streams will be through DC plans.
For advisors, “the income planning piece has more challenges than the accumulation phase,” says Joshua Itzoe, a certified financial planner with Greenspring Wealth, based in Towson, Md. The question becomes, “How do you monetize an asset base that has been accumulated over time?”
The practicalities of creating an income stream cannot neglect the psychological importance to retiring boomers of continuing to have a regular check, Itzoe says. To help boomer clients prepare for this change, Itzoe says his firm starts on the “front end” and talks with clients far enough in advance to prepare them for the change they will face.
Going forward, advisors will have more information available to them because there is more research being done on withdrawal rates, he continues.
But helping clients with income planning goes beyond technical expertise and includes honest communication, he says. If clients are living a lifestyle that cannot be supported in retirement because of an insufficient asset base, the advisor “as a fiduciary, has to have frank discussions and tell them the truth.”
Building trust with a client takes time, he says. “It is easy to say things, but harder to do them.”
This article originally appeared in the January 2008 edition of Income Planning, an online publication of National Underwriter Life & Health. You can subscribe for free to this monthly e-newsletter by going to .