Heightened transparency and education around the many financial products and services available in the marketplace today is critical in a client-adviser relationship, particularly surrounding changing consumer preferences for financial advice. The industry will continue to evolve, and as it does, advisers must escalate the importance of acting in the best interest of clients and present them with all available retirement income offerings. Regardless of regulatory changes, good advisers act in each client's best interest.
Saving for retirement is not as simple today as it was for previous generations. Demographic changes, and the fraying of corporate and government safety nets have had a profound impact on retirement income planning. With interest rates at historic lows and equity markets at all-time highs, the conditions that have allowed the most trusted strategies of the past to succeed are unlikely to be successful much longer. In fact, there is a 50% chance that retirees will outlive their savings. The annuity products available in today's financial marketplace offer guaranteed lifetime income that can help consumers achieve their retirement goals. It's up to the adviser to present these products to their clients to ensure they understand all available options, including how their adviser gets paid.
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MAKING THE CASE FOR CHOICE
The Department of Labor's final rule acknowledged that both fee- and commission-based services can be in the client's best interest. Coupled with a thorough assessment of client needs and unbiased advice, both options offer benefits to clients. By listening to their needs, including past financial history and future goals and objectives, advisers can analyze a variety of potential paths for clients to take. In laying out options, clients are empowered to make their own decisions and determine what is right for them. Sharing objective information gives clients not only flexibility in options, but ultimately the choice to determine how they want to plan for their future.
As advisers help clients achieve their retirement income goals, there are certain factors to consider when determining which product or service is the right fit, and whether a fee- or commission-based arrangement is appropriate for each client.
DIFFERENT FINANCIAL NEEDS
Clients who anticipate more frequent portfolio changes may prefer a fee-based arrangement for consistent monitoring and oversight. In this manner, a flat rate or fixed percentage can help clients keep costs down, while receiving financial advice on a regular basis.
(More: How independent financial advisers can build practices that thrive regardless of DOL fiduciary rule outcome)
If clients see less need for ongoing portfolio changes, commission-based arrangements may be more suitable. In this model, clients receive advice primarily at the beginning of the process. Commission-based advice may be particularly appropriate for long-term, buy-and-hold investments like annuities. This level of guidance requires advisers to spend a significant amount of time educating clients about product selection and how it will contribute to their retirement income planning objectives.
BUILD TRUST
Clients place a great deal of trust in financial advisers, providing the industry with the opportunity to increase the level of client care by promoting transparent and open conversation.
By understanding a client's objectives for the future, advisers can present clients with a variety of choices and maintain transparency in discussions about their compensation models. To educate clients is to empower them to make an informed decision and build a client-adviser relationship underscored by trust.
(More: The Department of Labor's fiduciary rule: Where are we now?)
As consumer preferences and regulatory frameworks evolve, advisers have the opportunity to lead an open and transparent dialog about fee- and-commission-based retirement income services and prove how both act in clients' best interests. This not only reframes the conversation between clients and advisers; it also encompasses the broader perspective of overall client care.
John Kennedy is head of retirement solutions distribution for Lincoln Financial Distributors.
