Retirement income investors comprise the core target audience for many advisors.
A new report released Wednesday by Practical Perspectives and GDC Research, two independent consulting and research firms working with wealth management providers and distributors, examines trends in how advisors work directly with individual retirement income clients.
The report is based on input from more than 600 financial advisors gathered through an online survey conducted in July and August 2016. Those surveyed include full-service brokers, independent brokers, financial planners and RIAs.
“While support for retirement income clients is a core activity of virtually all advisors, few specialize exclusively on the topic and many still do not have a significant focus on offering help with less traditional subjects such as Social Security, healthcare or cognitive aging issues,” Dennis Gallant, co-author of the research report, said in a statement.
And while retirement income investors make up a large portion of advisors’ clientele, there’s no industry-wide consensus on how these investors should be handled.
“[T]here remains great diversity in how advisors work with [retirement income] clients, and little consensus on how to deliver income, which solutions to rely on or the principles to guide support,” Howard Schneider, president of Practical Perspectives and author of the report, said in a statement. “There has been virtually no shift in the philosophies advisors use to manage portfolios or greater agreement on the best solutions to use for these investors.”
Here are a few highlights from the 85-page report:
1. How many retirement income clients do advisors have?
For nearly 6 in 10 advisors, retirement income relationships represent more than half of all assets managed, according to the survey. Over half of advisors (53%) indicate retirement income investors are more than half of all clients they currently support. And the study finds most advisors expect their focus on retirement income relationships to grow modestly over the next 12 to 24 months, as will the number of retirement income clients served and total assets managed.
2. What investment philosophy do advisors use most frequently to generate retirement income?
Advisors are divided as to the overall philosophy they use to generate income for retirement clients, according to the survey.
More than 2 in 5 advisors (45%) use a total return methodology for generating cash flow for retirement clients.
“These advisors are not focused on income as an outcome for managing portfolios, but instead work to generate an optimal total return consistent with the client’s risk parameters,” the study states. “They then draw down the portfolio as needed and appropriate to satisfy client income needs.”
Meanwhile, nearly one in three advisors rely on a “pooled” or “bucket” approach, which the study describes as “deconstructing” portfolio management into different duration or objective-based pools of assets.