Your Retiring Clients Have Accumulated Assets. What Do They Do Now?

In today’s market environment, financial professionals should ask themselves a simple question: What kind of growth have you seen in the last five years? The question is timely because, discounting market appreciation, 61% of financial professionals have actually experienced negative business growth since 2016.

While the study behind this statistic was conducted in 2021 — well before the market declines of 2022 — one still has to ask: Where is the money going?

There are the usual suspects. Clients swapping financial professionals and clients passing away account for 14% and 16% of asset outflows respectively, according to Cerulli Associates. But the lion’s share — more than double any other factor — is from clients taking income. In fact, this accounts for 40% of asset outflows.

Over the years, financial professionals will help their clients formulate an asset allocation strategy, which of course is an essential aspect of asset accumulation. Equally important is this: As people approach and cross the threshold of retirement, focusing on asset decumulation and the longevity of money — LoMo — is critical, since clients will move 90% of their assets to the financial professionals who help them build income plans.

To address this, it’s helpful to study the insight of economist and academic Dr. Wade Pfau, whose research gives us a simplified, systematic way to talk to clients and prospects about retirement income strategies to ensure they have LoMo. Focusing on Dr. Pfau’s “Four L’s” — the universal client goals and concerns — is key:

• Longevity: Having assets that can’t be outlived, no matter the length of one’s retirement.
• Lifestyle: The ability to spend money in retirement at a steady clip without having to make any drastic reductions due to factors like negative market performance.
• Liquidity: (Or what Pfau calls “true liquidity”) having money for those unexpected shock expenses in retirement that’s not earmarked for other needs.
• Legacy: Leaving money behind to loved ones.

Of course, there are challenges blocking the achievement of those goals, such as market risk and inflation risk.

After discussing and outlining goals and challenges with clients, financial professionals should consider discussing the two distinct schools of thought people employ to help them meet their retirement income needs: a probability-based approach and a safety-first approach. While the former excludes annuities and relies solely on market performance, the latter approach is inclusive of both annuities and stock market investments. Here we believe, it is essential to determine which method clients prefer by having open conversations and understanding their mindset and risk tolerance.

To help people choose their income style, Pfau’s online Retirement Income Style Awareness (RISA) profile questionnaire can help. With about 50 questions, we believe RISA is an excellent tool to help people figure out their retirement income style. But if you’re at an initial stage of income planning with your client, we’ve found that a scaled down, five-minute interactive quiz that’s just 10 questions is often more palatable.

Either way, once you’ve helped your clients better understand their income style, you’ve set the stage to help them create a retirement income plan, which again, is key to LoMo and long-term client retention.

(Image: Khongtham/Shutterstock)

Jeannie Underwood-Kotner is senior vice president, head of Global Atlantic-Consulting.