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The Affluentialist: Best Practices for Retirement Planning

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According to an in depth survey of experienced advisors who devoted a significant portion of their practices to retirement planning, demands from clients are driving the evolution of retirement services. While responding to the push from clients to deliver more in the way of lifestyle services and to provide more financial education, advisors

have not uniformly adjusted their fees to respond to the added service-weight on their practices. These are the conclusions that appear in late fall 2008 report, Advisor Best Practices: Delivering Retirement Income and Transition Support, which was undertaken by Dennis Gallant of GDC Research, and Howard Schneider of Practical Perspectives, located in Sherborn and Boxford, Massachusetts, respectively.

The researchers interviewed advisors across delivery channels to include professionals working in wirehouse, RIA, regional, bank, insurance, and independent firms who devoted a significant portion of their practice to retirement income and transition support for more affluent clients–and had been doing so for at least 10 years. Their collected views and approaches provide a pragmatic list of best practices for advisors who specialize in retirement and valuable guidance for those who are more generalists.

“The advisors told us there are two kinds of clients,” notes Schneider. “One of the clients that they’ve been working with for an extended period of time and where retirement is something they they’ve talked about and planned. They get to retirement, and there’re no surprises. And then, there’s the other kind of client who parachutes in right before retirement. They’re 63 years old, and they have six months, six weeks, six days, six hours until they’re going to retire.”

The study illuminated several trends in the delivery of retirement support:

o More services beyond the typical asset management and retirement income strategies to now include health care, elder care and more family office types of support

o Additional analysis of the client’s emotional component as he or she considers transitioning and various lifestyle options

o Increased calculations for longevity planning to accommodate a range of life-stage needs, such as new career to nursing care

o Evolving practice models leading to more independent, fee-based team practices, with RIAs and independent broker/dealers take the lead in serving this marketplace

o Greater use of comprehensive planning as opposed to isolated product solutions

o Improved advisor listening and emotional analysis ability where listening skills are coupled with technical skills.

In general, advisors view their retirement clients as differing in significant ways from their younger clients in accumulation mode. They view retirement as requiring a higher degree of overall integrated planning given the larger number of life issues that need to be addressed within a context of living off investment income without knowing the actual time horizon.

Traditional Services

Perhaps not surprisingly for a service area undergoing transition, advisors more widely agree on what constitutes traditional service offerings than what’s included among the newer practices areas.

There are a number of services that almost all advisors deliver to retirement clients, such as selecting and managing investments, establishing and executing draw down strategies for income distributions, delivering estate planning guidance, or providing tax planning.

The study found that almost all advisors had considerable experience in these areas and apply them as a regular part of the client solutions. Advisors either consult directly with clients or coordinated solutions with the help of outside specialists attorneys, CPAs, and insurance experts.

“Beyond the study, we would expect with more and more advisors, if they really want to deliver retirement income and retirement transitions that address a client’s needs well, they are going to need to broaden the scope of what they do,” states Schneider. “They can do it one of two ways. They can either bring some of that resource into their own practice so they can handle it internally, or what a lot of them were doing is networking with others. Especially with the smaller practices, it’s much more likely that they’re going to network with others.”

Driving Change

With clients considering new scenarios for retirement lifestyles, they’re bringing more non-financial issues to discussions with advisors. Beyond satisfying client needs, broadening a practice focus often reflects a business strategy for positioning as the key trusted advisor for any challenge or issue clients face. “For most clients, life decisions are more crucial than investment choices,” notes one advisor in the study. “Retirement is a door for most clients, not a wall. I need to help them get through the door,” offered another.

Advisors viewed several drivers in the expansion of additional retirement services: higher client expectations, shifted financial responsibility to the individual from the safety of pension plans, increased longevity, more complicated family and personal situations, and greater need for self-fulfillment in retirement years.

The emerging services advisors are adding to their practices fall into five groups:

Elder care. Elder care remains a main concern of clients for themselves, a spouse, or a parent. Many advisors have relationships with care facilities and elder care specialists who can work with them to resolve the financial and logistical issues clients confront. Advisors may:

o Help identify eligibility for assistance programs

o Identify local care givers

o Secure space in a nursing home or assisted living facility

o Find a local elder day care facility

Personal Development. The new retirement often means a new career, launching a new business, or locating meaningful volunteer work, and, advisors have seen addressing these issues as central to planning financial and lifestyle issues. They guide clients to counselors, other resources, and also:

o Provide career counseling including skills assessment

o Identify employment opportunities, including full time and part time

o Assist in establishing a new business

o Find clients volunteer opportunities

o Guide clients through employment transitions, including graduated retirement

Healthcare. As even affluent clients express concerns about medical care costs during the post-career phase, it’s not surprising that retirement-focused advisors tend to view their support in this area as critical. Advisors typically discuss long-term-care insurance, other financial and protection issues, and special needs, and they may:

o Identify supplemental health care coverage

o Analyze benefits of long-term coverage options

o Guide clients through intricacies of Medicare coverage

o Identify caregivers for particular medical issues

o Act as advocate to insure appropriate medical proxies are in place as needed

Real Estate. For most clients, advisors don’t view personal real estate as an investment asset, but as a factor in wealth transfer and tax planning. They may:

o Identify mortgage options

o Analyze potential real estate deals

o Examine opportunities for downsizing

o Consider the impact of vacation home purchase

o Assist with relocation decisions

o Provide perspective on local real estate market conditions

Family. Several advisors in the study position themselves as a financial coach or quarterback and expect to address any issue that has an impact on their clients, which can range far beyond the financial into the personal. Advisors seek to:

o Provide business transition support

o Educate younger family members about key financial subjects

o Resolve family disputes related to wealth issues

o Establish funding mechanisms for special needs situations

o Help develop wealth transfer strategies

Some Surprises

After conducting the study, Schneider was surprised that there really was no agreed-upon best practice on how to manage money for retirement income clients. Advisors express little concern that clients would return in 10 or 15 years to complain about inadequate retirement income, as long as they regularly checked in with clients to make sure no major issues have arisen. Over spending by the client could disrupt any carefully plotted plan, they felt.

Schneider and Gallant have just completed a second study where they went back to the same advisors and asked how they were doing with the market downturn. They remained confident in their abilities to help their clients, although they showed somewhat lower confidence in their clients’ ability to achieve the type of retirement that many had expected.

Advisors are still being compensated primarily through asset management fees, which surprised Schneider and Gallant. Advisors talk about providing more retirement support and the extra effort and time it requires, and the additional follow-up conversations. Yet the fees they’re charging are for assets under management and they have not moved aggressively to charge any kind of retainer or project fee or other kinds of non-asset management fees. “We think that that will ultimately happen, but it hasn’t happened yet,” notes Schneider.