Graying advisers perform juggling act with baby-boomer, millennial clients

Despite the ongoing debate in the financial advice community about how to attract and accommodate the next generation of investors, retirement clients will continue to be the core of most financial planning practices. In fact, retirement investors represent a disproportionate share of most client bases, with roughly three in four advisers noting that the majority of the investors they serve are retired, nearing retirement or preparing for retirement as a primary goal, according to a new report “Advisors Working with Retirement Clients — Insights and Opportunities 2015.” The findings are based on an online survey of more than 800 financial advisers conducted in October 2015 by Practical Perspectives, a research and consulting firm focused on financial services. The new study offers a fresh examination of the importance of individual retirement clients to advisers and the challenges advisers encounter when working with these investors. Despite the large and growing base of clients who are retired or within five years of retirement, the report found that the vast majority of advisers do not focus exclusively on retirement clients. Instead, they support their retirement clients as part of a more generalized financial planning and investment management approach. Only 16% of advisers in the survey identified themselves as retirement income specialists. But advisers across all channels including independent financial planners, wirehouse investment advisers and insurance agents, are constantly searching for effective retirement-oriented tools and materials from their broker-dealers, insurance providers, custodians, software vendors and other service providers to serve their existing clients and attract new ones. “There is an almost insatiable thirst among advisers for help around retirement issues,” said Howard Schneider, president of Practical Perspectives. They are looking for client-facing information on Social Security, Medicare and other non-traditional issues, as well as better software and illustration tools, he said. GRAYING PROFESSIONALS Many advisers also are looking to create a network of specialists that can serve as referrals for their clients on a variety of topics. “Many advisers want to have critical conversation with clients about housing and health care, but they don't want to be involved in the decision making,” Mr. Schneider said. “They want to be the educator.” He noted it can be a great value-added service, but the challenge for advisers is to figure out how — or if — to charge for such peripheral services. Clients are not the only ones aging. The graying of financial services professionals has benefits for older clients, too, Mr. Schneider noted. “The advisers' experiences as they age makes them better suited to find resources to help their clients,” he explained. “I hear from advisers all the time that they didn't realize how challenging it was to find a nursing home, for example, until they had to do it for one of their parents.” Advisers identified the most significant investment-related challenges in working with retirement clients as help with managing portfolio risk and volatility, generating sustainable income for investments and creating sufficient income in a low-rate environment. Despite the importance of converting savings into retirement income, the report found no consensus on the preferred approach. A total return methodology is still most common although used by less than half of all advisers. Most advisers target a 4% to 5% asset withdrawal when creating income for clients. About one-quarter of advisers in the survey rely on a bucket approach to investing, with an emphasis on protecting clients from market volatility by allocating assets across duration-based short, intermediate and long-term pools. Another 20% of advisers use an income floor approach, with the goal of providing assured income for essential expenses while managing other assets for ongoing growth and to satisfy client discretionary expenses. These advisers tend to use guaranteed solutions as a key element of delivering income to clients. NO COOKIE CUTTERS Independent advisers are most diverse in their distribution across the various philosophies for generating retirement income and are the heaviest users of the income floor approach, the report noted. Advisers cited their broker-dealer and product providers, such as mutual fund companies or annuity firms, as their primary source and most useful support for working with retirement clients. Specifically, the advisers identified their top choices as BlackRock (wirehouse), Jackson National (independent), American Funds (regional) and Vanguard (RIA). “No two clients in the retirement space are alike,” Mr. Schneider said. “They require more time and attention, not a cookie cutter solution.” So let the robo-advisers pursue the millennials. Retirement clients needed experienced, human advisers. Mary Beth Franklin is a certified financial planner.