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Independent RIAs Lead Retirement Income Race

NEW YORK - Fee-based independent advisers, so far, are winning the retirement income race, beating out mutual fund companies, brokerages and insurance firms in the quest to conquer the 77 million Baby Boomers' estimated $17 trillion in retirement savings and total $90 trillion net worth.

The reason independent advisers are ahead of the game is simply because they are in the best position to provide personal attention and select the right mix of products for clients whose retirement income objectives are individual, complex and will increasingly include a comprehensive variety of advisory services-including guaranteed income, healthcare, long-term care, optimal tax management, estate planning and safely tapping into their home equity.

That was the consensus of speakers at Money Management Institute's Retirement Solutions Executive Forum here last Tuesday.

Meanwhile, the investment management industry "is trying to figure out what to do and innovating like crazy," said industry veteran Jack Sharry, president of Jack Sharry Consulting Group and creator of the first separately managed account to include an income guarantee. While there are approximately 100 retirement income products on the market right now, "there's more confusion than clarity now," Sharry said.

"No one has figured out the right tools, product mix or how to train advisers," added Sean Cunniff, research director of brokerage and wealth management at TowerGroup. "There is a lack of an end-to-end solution."

The retirement income product suite is largely completed right now, speakers agreed. The challenge is simplifying the design of retirement income products, finding a way to create the right mix for individuals, addressing all of the risks retirees face, and actually getting these packaged solutions directly into the hands of consumers or their advisers.

One of the biggest problems is, most firms have competing divisions all trying to develop the retirement silver bullet and market it, rather than working together. Firms lack an "enterprise strategy," Sharry warned. "Various departments are working like silos."

"Competing parts of the organization are chasing the retirement space," agreed TowerGroup's Cunniff. "Everyone wants to be part of the game, so you must get very high-level organizational support to create a scalable, fee-based platform and integrated technology, to deliver a consistent program and tools to advisers and call centers."

This divisiveness, combined with the lack of front-end software that can provide personalized solutions for investors-most of whom fall far short of the recommended $1 million in savings and are actually not receiving advice-is holding the some of the biggest and the best in the industry back from winning retirement savings rollovers.

Retirement income technology is also seriously lacking, to the extent that financial planners and investment firms today can't streamline rollovers, readily open new accounts, administer new products or provide overlay management through unified managed households or unified managed accounts-the latter of which, speakers said, could be the most important retirement income tool because it can minimize taxes.

For all of the hype about retirement needs, few firms are successfully connecting with their consumers. In a recent McKinsey & Co. survey of investors, the firm discovered that those with $250,000 or more of savings, 27% had sought guaranteed income advice but only 7% had received it.

Fewer high-net-worth households with a net worth of $1 million, minus debt and their primary residence, are seeking advisers, The Phoenix Cos. found in its ninth Annual Wealth Survey. Forty-one percent don't have a primary adviser and 33% don't receive advice, up from 26% and 18%, respectively, in 2003.

McKinsey also found that among retirees, their biggest concern is inflation, cited by 61% of respondents, followed by healthcare (56%), market risk (53%) and lack of guaranteed income, longevity and interest rates (49% each).

Having witnessed their parents undergo such medical hardships as a stroke or heart attack, or suffer from a chronic condition, today's retiring investors are frightened for their own old-age care, said Alok Kshirsagar, principal with McKinsey. Protecting their health to have a decent quality of life, which will cost retirees an average of $125,000 in out-of-pocket medical expenses, is a foremost, critical retirement fear that investment firms have yet to properly address, he said.

Retirees not being able to afford healthcare as their health declines, combined with many being overoptimistic about their ability to continue to work, "is an underappreciated crisis," Kshirsagar stressed. "Most advisers and firms are not prepared to deliver on this risk."

Investment management firms must be willing to be the bearer of bad news in telling people that they are ill prepared for retirement-but at that very moment give them a constructive roadmap for putting themselves in a better position to handle all of the obstacles they will face, speakers said.