“If you think only clients are worried about the distribution phase, think again,” Charlie Farrell presciently notes.
The CEO of Denver-based Northstar Investment Advisors is on something of an evangelical bent of late, warning advisors of the difficulties of running a profitable firm in the retirement income management space.
“It’s a whole different style, structure and service model,” Farrell, author of “Your Money Ratios: 8 Simple Tools for Financial Security,” explains. “The amount of interactions necessary to feed clients distributions from different accounts, all with different timing and tax issues (in addition to special one-offs) will increase precipitously. Essentially the service levels will double, but the fees will not.”
This “levelized” or declining asset base will combine with bear markets and an increased need for income due to health issues to create a situation where the advisor will find themselves with fewer clients, increased costs and decreased revenue.
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“The need for a scalable and efficient practice will be more important than ever.”
He cites a tipping point of between 20% and 25% of an advisor’s clients in distribution mode “that will really start to affect the efficiency and profitability of the practice.”