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Advisors Shift Portfolio Techniques

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In response to the market downturn, financial advisors are adjusting how they construct and manage portfolios to meet the income needs of clients living in retirement, says a new report published by GDC Research and Practical Perspectives, independent consulting firms working with wealth management providers and distributors of retirement products and services.

The 173-page report, “Examining Best Practices in Constructing Retirement Income Portfolios,” reveals great diversity in approaches, products and providers that advisors use to meet client needs for retirement income. Overall, one in seven advisors has made a significant change in how they construct retirement income portfolios, and 77 percent have changed how they allocate assets in response to the capital markets environment. Of the advisors surveyed for the study, 36 percent are less confident now than they were one year ago in their ability to manage assets for retirees. The findings indicate that advisors perceive building retirement income portfolios to be more complex, time consuming and in need of customization than portfolios for pre-retirement clients.

“While virtually all advisors agree that retirement portfolios must support dual goals of providing consistent income and long-term asset growth, there is little agreement on the best method to achieve these objectives” says Dennis Gallant, President of GDC Research and co-author of the report. “Advisors show significant variation in the philosophies they follow in managing retirement assets, how they diversify assets, and the ways they implement portfolios.”

“The market downturn has been a wake-up call for many advisors who serve retirement clients,” notes Howard Schneider, President of Practical Perspectives, the report’s co-author and a monthly contributor to Research magazine. “Advisors know that among their most important roles is being a trusted guide for clients who are trying to navigate the myriad of questions that emerge in retirement. Making sure a client’s assets are managed appropriately to meet income needs for basic living expenses such as shelter, food, energy and healthcare has never been more of a challenge for advisors.”

The report aims to provide a detailed examination of how advisors across distribution channels meet the need for retirement income and the processes, vehicles and firms they prefer to use when building portfolios. The analysis is based on over 500 online surveys and follow-up interviews conducted in late 2008 and Q1 2009 with financial advisors and representatives. Those surveyed include independent brokers, registered investment advisors (RIAs), wirehouse/regional brokers, and bank/insurance representatives.

Other highlights of the report include:
o An increasing distinction between satisfying income “needs” and “wants;”
o A trend for advisors to follow either a risk-adjusted total return approach (54 percent) or a pooled approach (46 percent) to solving the income dilemma for clients, with key differences apparent in each group;
o General satisfaction with available solutions and a preference for greater support with the process of delivering retirement income rather than with specific retirement products;
o A reliance on familiar investment vehicles and providers for the creation of retirement income portfolios, with only modest interest in many of the new retirement income solutions;
o Great variation in the product providers used for retirement income, with only one firm – American Funds – used by at least one in five advisors surveyed.

“This report provides an extraordinarily detailed view of the important issue of how advisors build retirement income portfolios and their use of products and product providers” says Gallant. Adds Schneider “The reality of how this support is delivered by leading advisors should be a guidepost for product developers, marketers and sales people looking to gain a competitive edge in serving the coming wave of boomers transitioning to retirement.”

The full report is available for purchase by contacting: [email protected] or [email protected].