Clients often unaware how much savings are needed to generate sufficient cash
Financial advisers need to ramp up their discussions with clients about retirement saving and planning, according to a panel of experts speaking yesterday in Chicago at the InvestmentNews Retirement Income Summit.
“Right now, the biggest gap that exists in our industry is true financial planning retirement income work,” said Robert DeChellis, president of Allianz Life Financial Services LLC.
Tracy Flaherty, senior vice president at Natixis Global Asset Management, pointed out some findings from recent industry surveys showing that 81% of institutional investors believe that the individual-investor market is not ready for retirement, and that individual-investor participation in the stock market is at a 15-year low.
In fact, even when individuals believe they are doing an adequate job in saving for retirement, many come up short. “People save for a long time and they think it's a lot of money, but it's not when you have to convert it into income,” she said. “It's an important role for advisers to have those conversations with clients.”
The third member of the panel, Richard LaVoice, executive vice president at Symetra Life Insurance Co., challenged advisers to ask their clients if they understand the impact of rising interest rates on a bond portfolio.
“We have to make sure everybody is on the same page in terms of risk,” he said. “Now is a good time to make sure people understand interest rate risk, and you can do that by asking your clients if they know what happens to a bond portfolio if there is a 1% rise in interest rates.”
He suggested that most investors have little familiarity of the relationship between interest rates and bond yields, which move inversely. “Your clients won't know what happens to a fixed-income portfolio if rates rise, because the mathematics of loss is not well-understood by investors,” he said. “This is an opportunity to offer clients certain safe money alternatives.”
Along the lines of such alternatives, the conversation turned to annuities, at which point audience members exhibited a certain degree of skepticism.
When asked why annuity products have to be so complex and sometimes expensive, the panel generally acknowledged that there have been instances of bad apples and bad outcomes, but they agreed that if the products are going to deliver on promises, they will always need to be complex.
“There have been situations where products were misrepresented, but that's not unique to annuities,” Mr. DeChellis said. “There are misperceptions about annuities, and we continue to work toward the opportunity to get people to better understand them, but these are very complicated products.”
Mr. LaVoice echoed the sentiment, saying: “If you want the value proposition, annuities will be complex.” He said: “In general, customer complaints regarding annuities have declined considerably.” Mr. LaVoice added that he believes annuities are generally underutilized by investors.
When asked how much of their personal investment portfolio was allocated to annuity products, the panel was mixed. Mr. DeChellis has 30% in annuities, Mr. LaVoice has 12%, and Ms. Flaherty is not currently invested in any annuities.
