As an increasing number of baby boomers seek financial guidance, advisors desire more products and processes to aid them in helping clients achieve a secure income stream in retirement. Yet advisors are somewhat stymied in their search for new solutions due to a number of reasons, including the complexity and a lack of track records for newer retirement income products, and a scarcity of training and educational programs from providers.
Those were a few of the key takeaways from a recent research project undertaken by GDC Research and Practical Perspectives, independent research firms that focus on wealth management providers and retirement solution distributors. Results were harvested from an online poll done in November of last year of financial professionals, including wirehouse and regional brokers; independent brokers, financial planners, RIAs and bank/insurance representatives. About 600 surveys were obtained.
“There is significant demand for solutions that advisors can use with retirement income clients,” said Howard Schneider, president of Practical Perspectives and co-author of the report, in a statement. “Managing portfolios to achieve the multiple goals of retirement clients is a critical and growing element of most practices. Yet the delivery of retirement income support remains highly customized and nuanced, making it hard for product providers to gain focus and traction in this marketplace.”
Most telling, the report concluded that a “sizable minority” of advisors lack the processes and capabilities needed to appropriately support retirement income clients. At the same time, the results underscore the growing market for retirement income expertise: More than 70 percent of advisors said they had increased the number of retirement income clients they serve in the past 12 months.
Advisors rely on a range of products for retirement income clients, with larger annuity carriers and asset managers among the most prominent providers, noted Dennis Gallant, president of GDC Research and co-author of the report, in a statement. Firms singled out by those advisors polled included Jackson, Blackrock/iShares, Prudential, American Funds, Franklin Templeton, Lincoln Financial and PIMCO.
However, few firms were cited as leaders in retirement income solutions, which highlights both the challenges and opportunities product providers face in making inroads into the retirement income field, Gallant added. In fact, fewer than one in five advisors stated they were highly satisfied with the retirement income support offered by asset managers or insurance companies. And nearly two in three advisors pointed to complexity as a major barrier to using new products and solutions for retirement income.
“Our research suggests that advisors are receptive to using new products and providers,” Schneider stated. “The challenge is making the case of why a particular solution can enhance what an advisor provides and how it integrates into the philosophy and product suite the advisor is comfortable using.”
In the coming year, advisors cited rising interest rates as the key factor that would spur changes in how retirement income portfolios are managed. Therefore, many are interested in new solutions that can help mitigate the impact of higher rates on retirement income clients.
Currently, roughly two in three advisors said that yield/income, liquidity, total return and safety or stability were the most important elements in the selection of investment products used to generate sustainable income in retirement. Products most often utilized to provide retirement income are dividend-paying equities and similar mutual funds and ETFs, according to the report. In general, securities-based solutions were employed more often than annuities.
Other findings from the GDC Research/Practical Perspectives report include:
- Advisors favor simpler product designs, greater liquidity or portability, and more focus on generating current income or cash flow in retirement income solutions.
- In selecting providers they prefer to use for managing retirement income portfolios, advisors zero in on fees or charges; interest rates/yield/income; and creditworthiness or financial stability of the provider. When choosing annuities or guaranteed products, the guarantees related to the income or return were evaluated as well.
- Use of annuities appears to be far more selective than the use of securities-related products, with only 10 percent of advisors using variable annuities for more than 50 percent of their retirement income clients. Nevertheless, advisors indicate use of variable annuities will continue to increase, although at more muted levels compared to previous years.