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Retirement Planning > Retirement Investing

Advisor’s Top Job: Helping Clients Stay Cool, Survey Says

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The latest quarterly survey of advisors by Russell Investments found that helping clients keep their cool when markets heat up wasthe most important role for FAs, the company said Thursday.  

More than half (55%) of advisors say the most valuable service they provide to clients in or near retirement is helping the client maintain perspective and think clearly about events and trends, according to Russell. This is followed by services such as creating a retirement-income plan (39%) and reducing portfolio volatility (34%).

“Advisors are constantly trying to strike a balance with their clients and this isn’t an easy feat, especially in the current volatile environment,” said Phill Rogerson, managing director of consulting and product development for Russell Investments’ U.S. advisor-sold business in Seattle, in a press release.

“On the one hand, they are addressing short-term concerns about the markets and clients’ resulting uneasiness, while on the other hand they are trying to guide clients towards long-term goals, which in many cases means taking on some portfolio risk in order to meet eventual retirement-income needs,” Rogerson explained. “It is a seemingly conflicting set of demands that they find themselves juggling daily.”

For its latest survey, Russell polled close to 375 financial advisors working for some 150 firms nationwide between July 28 and Aug. 12, during the height of the U.S. debt-ceiling debate and subsequent S&P downgrade.

The majority of advisors surveyed say their clients have realistic expectations about retirement: 68% of advisors say that less than 40% of clients have unrealistic expectations. Also, the survey found the most common topics of conversation that advisors are initiating with clients in or near retirement include generating sufficient income (50%), portfolio rebalancing/shifting asset allocation and discussions about running out of money in retirement.

Three months ago, Russell’s Financial Professional Outlook survey found that advisors and clients are not likely to be on the same page when it comes to financial planning. According to the latest survey, this trend extends to those clients who are in or nearing retirement.

Discussions initiated by these investors seem to focus on headline-grabbing issues, with two of the most common topics being concerns with government policy (47%) and market volatility (41%), Russell says. Still, FAs and clients in this group do appear to see eye-to-eye when it comes to retirement income, as advisors cited this as the third-most common topic for conversations initiated by themselves and by clients.  

No Consensus on Conversations

According to the advisors surveyed, clients rank sufficient income (48%) second only to protecting principal (56%) in terms of the advisors’ perceived value. Furthermore, 50% of advisors say generating sufficient income is the most common topic of conversation they are initiating with retired or nearly retired clients.

When asked what tools they use to facilitate conversations with clients who have unrealistic expectations around retirement, there is no consensus. About one third (37%) of survey respondents say they use a detailed plan, followed by 16% who give a presentation about how to think about retirement and 14% who say they use a blank piece of paper.

Ten percent of the survey group selected “other” as their tool and described more than 20 types of tools and approaches they use to support conversations around retirement income.

“It took the industry 50 years of research for Modern Portfolio Theory to evolve, but the decumulation phase is materially different [from the accumulation phase] and the focus on this is relatively new, so it is not surprising that the approach to generating income in retirement is still developing,” said Rogerson.

“Investors are increasingly looking for personalized and flexible investment plans that allow them to maintain their standard of living in retirement and mitigate the risk of running out of money, and advisors must recognize that traditional investment approaches have to evolve to meet these in-retirement needs,” he added.

Advisors and the industry have much to learn from institutional wealth-management techniques, Rogerson explains, “and, for Russell’s part, we are leveraging our history of solving problems for institutions to help advisors navigate these discussions with clients.”

In terms of their outlook for the capital markets, optimistic sentiment dropped among both advisors and clients and the “sentiment gap” between the two groups widened. There is now a 59% gap in advisor-investor optimism, versus 48% last quarter.

Overall, 72% of advisors report being optimistic about the capital markets vs. 13% who are pessimistic. In terms of their clients’ perspective, 13% of advisors feel that their clients are optimistic about the capital markets this quarter, down from 29% in the June 2011 survey.


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