Filed Under:Life Insurance, Life Planning Strategies

How Are Advisors Managing in a Low-Rate Environment?

Photo caption: Jeroen van Oostrom
Photo caption: Jeroen van Oostrom

The Federal Reserve last week reaffirmed its commitment to a “highly accommodative” monetary policy, maintaining a near-zero federal funds rate at least through the end of next year. While that is great news for individuals and businesses taking on more debt—such as home buyers and refinancers—low rates remain a significant challenge to retirees and their financial advisors.

A new study by the consultants Howard Schneider of Practical Perspectives and Dennis Gallant of GDC Distribution Consulting examines the challenge of low rates (and other topics) in their report Trends in Advisor Delivery of Retirement Income–2012. Schneider and Gallant presented their findings on a live webinar April 25 sponsored by the Retirement Income Industry Association.

In an interview, Schneider said that “RIAs tend to have wealthier clients who may be less concerned about generating income [and] tend to be more total-return oriented.” He added that insurance advisors who are already pre-disposed to annuity products have tended to be “very happy with annuities and riders set up over the past 10 years.”

The Trends report also looked at the issue of market volatility and risk, and found that advisors’ response to this concern has exactly matched their response to low interest rates—through increased usage of dividend-paying stocks and guaranteed solutions such as variable annuities. Once again, insurance advisors and RIAs were outliers. RIAs’ top action in response to volatility has been increasing client cash. “This likely reflects the positioning of RIAs as money managers employing a more tactical orientation to asset management,” the report finds. Insurance advisors turned first to guaranteed solutions. Bank advisors, along with RIAs, were unique in their greater willingness (25 percent of respondents) to stay the course by not responding to volatility.

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Nichole Morford

Nichole Morford
Managing Editor

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