Defined contribution plans such as 401(k)s have so changed the retirement landscape that advisors are firmly planted in a new financial-planning era that requires them now more than ever to help clients with rollovers, annuities and income in a low-yield environment, a new Cerulli Associates report says.
“Advisors are grappling with how to construct retirement-income strategies that are personalized, dynamic, flexible and tailored to retirees’ individual needs,” writes Cerulli analyst Joy Greenberg in a data-filled research report published Wednesday in the Investment Management Consultants Association’s (IMCA) Research Quarterly.
Cerulli’s research points to retirement market trends that advisors face, including low interest rates, that have called into question the common method of overweighting traditional fixed income securities as a way to generate retirement income.
At the same time, Cerulli says, strong equity markets have led to more risk-taking even as retirees are confronting greater longevity risk, long-term care costs and health care expenses.
Cerulli estimates that roughly 73% of rollover assets go to providers with whom investors have current relationships.
Considering that rollovers to an advisor account for 54% of overall rollovers, advisors who maintain strong relationships with their clients have an advantage, Cerulli says, especially considering that rollers to advisors were on average more than twice the size of rollovers to direct providers, at $120,000, compared with less than $60,000 for direct providers.
DC Replacing DB
All these issues are now cropping up at a greater rate for advisors because many traditional defined benefit (DB) plans, such as company pensions, are going away and being replaced by defined contribution (DC) plans, according to Brian Ullsperger, a certified investment management analyst at Andersen Tax’s investment advisory services in Washington.
“The time of DB plans is ending. We’re entering into an era over the next five to 10 years where we’ll have more clients with DC plans than DB plans,” Ullsperger said in a phone interview.