Advisors Doubt Robustness Of Clients' Retirement Assets

That compares with 10% of 1,305 surveyed advisors who believe that 81%-100% of clients would have enough income in retirement, Curian found. Still, only 15% of the advisors indicated that 41% or more of their time was spent finding income solutions for clients.

Of all the factors that jeopardize retirement income plans, 40% of responding advisors indicated that the biggest threat was “too little time to build sufficient wealth prior to retirement.”

Two of the most important income planning functions these advisors say is part of their job include determining a required savings and portfolio structure to meet future retirement needs (42%), and managing the portfolio along with distributions and withdrawals during the income draw-down phase (31%.)

For clients taking income distributions from their portfolios, 67% took 4%-5% of assets under management; 24%, 6-7%; 6%, 2-3% of AUM; and a respective 2% and 1% taking 8-9% and 10+%, the survey found.

For clients who are prepared for retirement, variable annuities and separately managed accounts led the products used to implement their retirement plans. These products received 73% and 69% of advisor responses, respectively.

But for clients who are not prepared for retirement and who have a financial gap between current assets and assets needed, the advisors said the 2 major products they use are variable annuities and mutual funds, with 67% and 64% responses, respectively.

Separately managed accounts were not used as frequently for clients who are not prepared for retirement. For instance, 55% of advisors who participated in the survey said they use SMAs for clients who are not prepared for retirement, compared with 69% of advisors saying they use SMAs for clients who are prepared for retirement.

Forty-six percent of the advisors said they look at investment products such as annuities because they offer benefits that allow for consistent income payments with the potential to be invested in equities. And 27% said they maintain pre-retirement equity proportions because lower yields on fixed income investments cannot keep pace with the impact of inflation.

SMAs were once used mainly for high net worth clients but now are retirement income planning tools available to all clients, according to Michael Bell, Curian Capital’s president and chief executive officer. Because of technology, he says, the SMA is now a product that Curian can offer with a $25,000 minimum.

Companies are starting to put a variable annuity wrapper around a SMA, Bell continues. That makes the SMA, in effect, a subaccount of the VA, he indicates. Curian is watching to see if this type of product is something that the company would want to pursue, he says.

SMAs are better suited to income in retirement because of the costliness of mutual funds including the cost of a tax drag, according to Chris Rosato, a senior vice president-strategic development with Curian. So, although the average cost of a mutual fund is 167 basis points or 1.67%, when the tax drag related to selling is considered, it can total 300 basis points or 3%, he continues. This compares with an average cost of 240 basis points or 2.4% for SMAs, Rosato adds.