With the growing number of Americans—and assets—moving into retirement and seeking assistance, there is no doubt that retirement income planning represents a tremendous opportunity for advisors.

According to the Fidelity Advisor 2006 Survey of Investors at Retirement, advisors who have built retirement income plans for their clients have realized a 50% increase in "very satisfied" clients. More than three-quarters (77%) of those same clients indicated they would be willing to move all of their assets to one advisor and 95% said they would refer someone to the advisor.

Opportunities typically come with challenges, though. The changing retirement landscape—rising healthcare costs, greater individual responsibility for retirement savings and an aging population that's living longer—is creating a new environment for advisors as their clients increasingly need less help accumulating assets and more help distributing those savings. For advisors to evolve their business models successfully, they need to fully understand and confront three primary challenges:

Increased planning complexity. Retirement income planning is more comprehensive and, therefore, more complex than the accumulation process. But it presents an enormous opportunity for advisors to gain new business. It requires an in-depth analysis of clients' expectations and financial details as well as the key risks facing retirees, such as healthcare costs and greater responsibility for retirement savings.

Greater time demands. Building retirement income plans requires deeper, more time-intensive levels of exploration than those typically required to create savings plans. As advisors increasingly help retirees, they are likely to spend more time preparing for and serving each client than before. This could require reducing the total number of clients an advisor serves or spending less time on discretionary tasks.

Changing practice economics. Building a profitable business model in which assets are shifting from accumulation to distribution requires understanding how retirement income planning may impact advisors' revenue. According to analysis by Fidelity Investments, due to the effects of the product mix, asset allocation and systematic withdrawals on retiree clients' portfolios, advisors' compensation opportunity may decline by up to 48% over a 10-year period for an advisor with a 100% retired clientele.

The Retirement Brand

We believe that advisors are already well positioned to meet these challenges, but that it will be those who adopt best practices, seek out industry expertise and build out a retirement brand who will thrive in this changing market. Here are some strategies that we believe can help advisors position their retirement businesses for success.

Become proficient in all things retirement and create a retirement specialist brand. Many Americans need and expect more help from advisors with retirement planning. For example, fewer than 25% of the investors surveyed describe their current advisor as having "excellent" knowledge of long-term care or Social Security. For advisors to deliver successful retirement income planning services, they'll need to:

• learn about the five key risks to retirement security-longevity, healthcare expenses, inflation, asset allocation and withdrawal rate;
• understand withdrawal strategies, tax implications and regulations regarding asset distribution; and
• stay abreast of changes in relevant government programs, including Social Security and Medicare.

When advisors help their clients develop a retirement income plan, they need to think about product allocation more than asset allocation. Products range from stocks, equity-oriented mutual funds and managed accounts to more income-oriented mutual funds, managed accounts, bonds, CDs and other bank deposits and reverse mortgages. Annuities to complement Social Security and pensions, as well as long-term- and critical-care insurance may also be part of the mix.

Regardless of which products advisors choose to offer, it's important to stay current with retirement-oriented products, consider obtaining new licenses, and understand how these products might be included in retirement portfolios-and how a changing product mix can impact compensation.

Lastly, consider creating a retirement brand by referencing your retirement specialization in correspondence, business cards and letterhead. Think about obtaining retirement-related certifications and preparing a few probing questions about retirement preparedness to ask prospects and clients.

Use healthcare as a differentiator. Research shows that healthcare costs are the primary cause of anxiety for retirees and pre-retirees. Providing information and education about the financial aspects of healthcare in retirement can serve as a powerful differentiator, enabling advisors to stand out from the competition.

Since healthcare resources are fragmented and hard to find, and governmental programs, such as Medicare, are complex and frequently changing, advisors have an opportunity to fill the information void with great results. Consider that 46% of surveyed investors believe it's important for their advisor to have detailed knowledge of long-term-care planning and 39% would like to discuss healthcare coverage with their advisor. In addition, Americans may be underestimating their total out-of-pocket healthcare expenses in retirement by more than 60%. We expect the average American couple retiring today will need $215,000 for healthcare in retirement.

Advisors may want to expand their knowledge of programs such as Medicare and COBRA and consider getting licensed to sell healthcare-related products, including Medigap insurance, prescription drug plans, long-term-care, longevity and health insurance.

Foster relationships with healthcare experts and health insurance providers, or try a combination of both. They may be able to refer clients with specialized needs to appropriate providers.

Profitable Transitions

To transition profitably to retirement income planning, advisors must build efficiencies into their practice and adjust their compensation models. This may require reassessing client value and considering new planning tools and products. Four strategies can help:

• Identify high-value clients and increase share of wallet. Because advisors may have to reduce the number of clients due to the time-intensive nature of retirement income planning, it's important to maximize the value of each client. Identifying high-value clients and increasing share of wallet are important factors in maintaining compensation.
• Leverage efficiencies. Consider using tools and products that help streamline the income planning process. Expand your professional networks to alleviate workloads.
• Offer alternative products. Retirement-oriented products, which clients purchase at the expense of investing assets, present opportunities to tap new income streams. Fidelity research shows that among Americans age 55 to 70 who are not yet fully retired, over half (51%) would like to discuss additional retirement-oriented products, such as long-term-care insurance. Offering these products may help retain clients who might seek those products elsewhere.
• Adopt an appropriate compensation model. In retirement planning, a fee-for-service model may be advantageous. Two out of three surveyed clients (66%) prefer to pay their advisor either a fee-for-service or a fee as a percentage of assets under management.

Given the changing landscape, revenue models are likely to evolve into one of two forms: a fee-based model using a percentage of assets under management, where the pricing formula would take into account a client's net worth, income and complexity of planning needs; and a hybrid model that draws income from commissions and fees for service. As a practice's product mix changes, charging fees for services, such as building retirement-income plans, could recapture revenues lost from declining sales of commission-based products.

But there are risks inherent in both models. Fees can be an inconsistent revenue source. Because collecting fee revenue directly from clients is different from automatically collecting commissions and trails, advisors need to be prepared for the change. They should consult with their home office about licensing and compensation requirements.

Two additional strategies to consider are: combining income planning with effective client management strategies; and refining client acquisition strategies. In the first, advisors need to know how to develop and execute thorough, rigorous retirement income plans if they want to fully develop their retirement business. To maximize profits, any process must be scalable. In the latter case, consider asking for referrals from current income planning clients, talk with 401(k) plan sponsors, or partner with advisors whose practices are at different stages.

No doubt becoming a retirement specialist will change your practice forever. Advisors who embrace the changes and adapt their practices accordingly will be positioned to thrive as the marketplace shifts.

John "Jack" W. Callahan is president of Fidelity Institutional Wealth Services, the unit of Fidelity Investments that provides trading, custody and brokerage services to RIAs, trust institutions and third-party administrators.