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Advisors in Trouble on Retirement Income?

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Advisors may say they're comfortable developing retirement income strategies -- but none seem to agree on the right way to create an income stream.

That's one of the key findings of the latest Financial Professional Outlook survey from Russell Investments, released Thursday. "Nearly all respondents said they would like something to help them," the report concluded.

The survey also suggested there was "no clear consensus on a best practice" for evaluating and measuring success, with answers split between preservation of principal after distribution (34%), a portfolio that maintains a projected rate of return (20%), net present value of projected assets vs. liabilities (15%) and various other options.

"A lot of people are looking for the right solution," says Rod Greenshields, consulting director for Russell's advisor-sold products and author of this quarter's survey. "That old classic -- the widow that has the pension plan, and the GE stock dividends -- no one looks like that anymore."

The combination of demographic shifts -- with boomer clients entering retirement -- and broader economic trends, including market volatility and the increasingly difficult search for yield, has increased the challenge for advisors, he says.


Because Russell has a background in advising pension funds, Greenshields says, the company has been looking for ways to apply that knowledge to its practice management offerings for advisors. He suggests using the concept of "funded ratios," which compare assets against a client's liabilities -- including "spending goals, how long you'll live, the economic environment" and other factors, Greenshields says.

Such ratios are a "laser-sharp communication tool for advisors to use with investors," he adds, saying they also help advisors develop investment plans.

A more positive finding from the survey was a drop in the number of clients with unrealistic retirement income expectations. Advisors reported that 37% of clients were fuzzy on their retirement income prospects -- a drop from 46% in June 2012.


The report, which surveyed 321 financial advisors across a range of channels, also looked more broadly at other advisor activities. Among its other findings:

  • Advisors think they are far more upbeat than their clients: 83% are optimistic about the capital markets over the coming three years, while only 31% say their clients are optimistic. That's both odd and persistent, says Greenshields, but may simply be because advisors are more focused on actual market performance, while clients get distracted by other negative news. "The year-to-date performance of the market is 22%," says Greenshields, citing the Russell 1000 -- "but if you ask investors how the market is doing, they'll probably say mediocre to bad." 
  • Your clients worry about the wrong things. A question on client conversations finds that clients' top three questions focus on market movement, government policy and portfolio performance. Contrast that with advisor-driven conversations, which center on rebalancing, portfolio performance and running out of money in retirement. Advisors can add value by helping steer clients to issues they have control over, Greenshields says. "Engage in those conversations, but don't get stuck there," he cautions. "Listen, but then fairly quickly reposition: Here's what we're going to do about that."

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