Fidelity Assists Advisers With Retirement Income
June 27, 2011
While retirement income is fast becoming the No. 1 concern of retirees and pre-retirees, trumping worries over rates of return and control over money, a mere 9.5% of financial advisers are addressing the issue in depth-missing out on a vital way to form and cement relationships with those entering into retirement, according to Fidelity Investments.
And there is a lot of money at stake. Fidelity estimates there will be $1.7 trillion in rollovers by 2014.
This is why Fidelity is drawing attention to the disconnect and is planning to hold retirement income webinars and seminars across the country to equip financial advisers with the tools and best practices they need to help their clients with this important and growing need.
Fidelity has also published white papers and guides on how to address retirement income on a microsite it has devoted to the topic: http://advisor.fidelity.com/retirementincome. The site also includes fact sheets and marketing materials on the 14 Fidelity Advisor Income Replacement Funds.
Investors whose financial advisers have presented them with detailed, written retirement income plans rate them highly-yet only 18% of pre-retirees who work with an adviser have any type of retirement income plan, according to a survey of 500 retirees, pre-retirees and advisers, "Fidelity Retirement Redefined," that the mutual fund giant unveiled last week.
More startling, perhaps, is the fact that among those 18% who have a retirement plan, only half (53%) have detailed, written plans.
In other words, a surprising mere 9.5% of investors who work with an adviser have a comprehensive, written retirement income plan.
"Our survey found that advisers face a range of challenges that can make writing a retirement income plan feel extremely complex-and for that reason, many are opting for more informal planning processes," said Larry Sinsimer, senior vice president, practice management for Fidelity Investments Institutional Services Company.
Even those advisers who are aware that reliable, guaranteed monthly income is the biggest concern of their retiree and pre-retiree clients aren't stepping up to the plate, Fidelity found.
So what's keeping financial advisers out of the new retirement income game?
The perception that retirement income planning is too complex, time-consuming and not as lucrative as merely helping investors accumulate assets for retirement.
Financial advisers are well aware that retirees' heavier asset allocation to annuities and fixed income and money market funds generates lower commissions and trails. Retirees also systematically withdraw, rather than contribute money, resulting in a reduction in assets under management that also translates directly to lower compensation for the adviser.
But Fidelity has already found that the minority of advisers who have overlooked these short-term concerns and are focused on the big picture by offering retirement income planning services are already realizing tangible benefits in the form of greatly improved client satisfaction, asset consolidation and referrals, Sinsimer said. "Investors are telling us that those advisers who can help them address the complexities of retirement planning-in writing-will secure their loyalty, referrals and business," Sinsimer said.
The Fidelity survey found that 81% of pre-retirees said a detailed plan is important. Perhaps more important, among the minority of investors who have comprehensive, written retirement income plans, they entrust more money to their advisers, the survey found.
Of those few pre-retiree investors who have written, detailed retirement income plans, 63% said they were "very satisfied" with their advisers, and among retirees with comprehensive retirement income plans, that jumped to 69% who were "very satisfied."
That satisfaction translates directly to more assets under management.
The "very satisfied" pre-retirees consolidated an average of 72% of their savings and investments with their primary adviser, and the "very satisfied" retirees consolidated 81% of their assets.
Comprehensive retirement income planning also means a wider net of clients; 79% of the "very satisfied" pre-retirees and 83% of the "very satisfied" retirees referred business to their adviser.
However, actually putting the retirement income plan to work remains a challenge because of issues on the client end, Fidelity found. While 80% of retirees with a detailed, written retirement income plan said they would follow at least some of the plan's outline, advisers pointed to a number of realities that often derail such plans.
These include: a disconnect on financial priorities between spouses, financial obligations to other family members and, greater concentration on their retirement balance than on lifetime income.
"Retirement assets are going to flow to the adviser with the credible solution for retirement income planning, which does not have to be a complicated solution," Sinsimer said. "Advisers today should be focused on how they are going to leverage written income plans to become their client's primary, most trusted adviser prior to and throughout retirement."
To remain competitive, advisers must offer retirement income planning, according to Fidelity. MME
5 Key Steps to Creating A Retirement Income Practice
* Become proficient in all things retirement and create a retirement specialist brand.
* Use knowledge of healthcare and long-term care as a differentiator.
* Learn how to develop and execute thorough, rigorous retirement income plans and review each individual plan annually to make changes that reflect changes in clients' situations as they progress through retirement.
* Evolve to a more efficient, profitable business model. Identify high-value clients. Use tools and packaged products such as lifecycle and funds-of-funds to streamline the income planning process. Partner with other specialists such as tax/estate and healthcare experts.
* Consistently generate referrals and develop a retirement-focused niche by catering to a specific industry or geographic area. Offer retirement income planning services to 401(k) sponsors. Partner with older advisers about to retire to assist them on their book of business.
Source: Fidelity Investments