Indie Advisors’ Growing Pains; behavioral finance insights; and differentiating yourself from competitors: June Research—Slideshow

Indie Advisors’ Growing Pains

Adding clients, and finding ways to serve them efficiently, is key to business expansion.

Independent channel executives love to cheer their space — and no wonder. It continues to grab market share. It exudes a strong client-first mindset. And, according to Fidelity Investments’ new Broker and Advisor Sentiment Index, RIAs and the independent broker-dealer channel generate the highest levels of advisor satisfaction. These folks are happy.

But in corner offices, top leaders are grappling with a key question: As it faces revenue-building inhibitors and other challenges, what must the independent channel do to create sustainable success?

Indie sector experts weigh in on how to advisors can climb to the next level in today’s straitened economic circumstances.

Giving Clients What They Need

Behavioral finance expert Meir Statman focuses on beating bad thinking.

Professor Meir Statman has been doing notable behavioral finance research for decades (some of it together with billionaire investor Ken Fisher). Now he has published a book that makes this research accessible to lay advisors and investors.

In What Investors Really Want, the Santa Clara University researcher provides deep insight into just what drives investor decisions. Science is the route to smarter investing, says Statman, who urges FAs to deter clients from “the tempting voice of wants” — often prompting bad investment choices — and steer them instead toward “shoulds” — which mostly lead to smart choices.

Researchrecently interviewed Statman to shed light on how advisors can use the science of behavioral finance to build client trust and add value.

The Differentiation Dilemma

Why should prospects hire you over your competitors?

While attempting to win over a new client, we may think that we are impressing them with our investment knowledge and financial planning acumen. All seems to be perfectly aligned as we begin to feel quite proud of our salesmanship and performance. However, that euphoric feeling can be rather abruptly shattered when the prospective client says: “So, tell me why I should hire you over the other hundred financial planners who called my office last week?”

The key to resolving this dilemma is to realize that it is not sufficient to tell them why you are different, but rather you need to show them that you are different. In his Client Relationship column, Raphael Lapin offers a two-step approach to effective differentiation.

Retirement Planning Gone Awry

Poor planning and poor luck plague retirement outcomes.

Most investors end up needing to take retirement income out of current assets, with most advisors defaulting to the rule of thumb known as “the 4 percent rule.” However, recent research shows that this rule of thumb is far more hazardous than commonly understood.

Wade Pfau, a professor at the National Graduate Institute for Policy Studies in Japan, has demonstrated that the experience of international markets suggests a withdrawal rate far lower than 4 percent, and that a 4 percent real withdrawal rate is based upon “irrational optimism.”

Indeed, data from countries such as Spain, Belgium and France suggest that even a 3 percent withdrawal rate is highly problematic. Pfau has also shown that Americans who retired around the turn of the century are often in real danger. Indeed, for 2008 retirees, Pfau estimates a maximum sustainable withdrawal rate of only 1.46 percent.

In this Annuity Analytics column,Bob Seawright looks at various approaches to common retirement income challenges.