Is disinterest in retirement products problematic?

Financial advisers lack interest in new retirement income products, with many reporting that the products are too complicated and costly, according to observers. "Skepticism is healthy, but advisers may be missing the boat on the subject. They should not be anti-product," said Phil Chiricotti, president of The Center for Due Diligence, a Western Springs, Ill., independent-research organization that specializes in analyzing the competitiveness of 401(k) programs for advisers. "The demand for new retirement income products from large plan sponsors and aging consumers is there." Consumers "want downside protection. They don't know it yet, but advisers can't really manage the solution," Mr. Chiricotti said. But some advisers feel that the most important part of retirement planning should be the strategy and process, and not the products. Such is the opinion of Jeff Carbone, a managing partner with Cornerstone Financial Partners Inc., a Cornelius, N.C., firm that manages $300 million. Cornerstone does use income products such as annuities; however, he said, "it's more of a need for a process and strategy of income distributions than it is product." In the recent Industry Attitudes survey conducted by InvestmentNews, 220 advisers answered a question concerning the need to create new products aimed at the retirement market, based on a scale of 1 to 5, with 1 being "not important" and 5 being "very important." Nearly 58% of advisers chose 1, 2 or 3 as their answers, while about 42% chose 4 or 5. Advisers' disdain for current retirement income products is somewhat understandable. Many of the products lack flexibility, said Dan Danford, a principal and chief executive of Family Investment Center Inc., a St. Joseph, Mo., firm that manages $60 million. "One of the things that I think will be hugely important in this whole baby boomer retirement arena is flexibility," he said. "It drives me crazy," Mr. Danford said. "If we put them in a product, then they're locked in, and that concerns me." But David L. Kaiser, an adviser at Pinnacor Financial Group Inc. in Denver, thinks that there is a place for the right products, saying that if they are explained adequately, then baby boomers will flock to them. His firm manages $50 million. "We approach it as a combination solution," Mr. Kaiser said. His firm considers annuities to help cover the basic expenses and often invests the rest of a person's assets for discretionary items such as travel and charitable donations. "I really think the flexibility aspect is important," Mr. Kaiser said. "If you're too locked up in product, that really restricts you; I don't think you have the flexibility to adapt to the changing world." It is difficult to spend the necessary time understanding complicated products, and it is even harder to explain complex products to clients, said Bradley H. Bofford, a managing partner with Financial Principles LLC, a Fairfield, N.J., firm that manages $155 million. "A retirement income product may be of tremendous help, but it is not a substitute for the comprehensive process," he said. But advisers may be pleasantly surprised by some of the retirement income products that are coming out, as they offer more portability and flexibility than previous products, Mr. Chiricotti and others in the industry said. Some of the newer products won't rely on annuitization alone to provide retirement income, he said. And Mr. Chiricotti thinks that mutual fund companies will continue to offer new solutions. "The new products will have reasonable fees, they won't require annuitization, and they'll be port-able," he said. "There's a huge demand that advisers are not coming to terms with yet." The new generation of products will indeed surpass the previous products, said Luis Fleites, vice president and director of retirement at Financial Research Corp. in Boston. "Even though everything's been under development for a while, you have new products that are still in the early versions," he said. "They'll roll them out and get feedback, and then we'll see the second, third and fourth version." Some advisers might be fearful that new and better products will take away an adviser's value, Mr. Fleites said. Another concern of advisers is that many of these products are new and haven't been tested, he said. "These are strategies that have not been proven to work," Mr. Fleites said. "Do advisers really want to bet the well-being of their clients off the bat?" But Mr. Fleites said that in the future, product managers will begin to educate advisers more closely about their products, which will help allay advisers' concerns. Lisa Shidler can be reached at lshidler@crain.com.