Don't believe the retirement income hype.

If the independent financial advisers and registered investment advisors at the forefront of the retirement income curve could summarize the products and support they have been receiving from mutual fund companies so far, this would be their dismal assessment.

This was one of the key conclusions of a detailed report released last week by GDC Research and Practical Perspectives titled, "Adviser Best Practices in Delivering Retirement Income and Transition Support."

The two management consulting firms estimate that out of the 300,000 financial advisers in the nation, only 5,000, or about 1.6%, are focusing on retirement income.

Of these leaders, 87% of them are independents because they are in the best position to provide detailed, highly personalized solutions for clients. As such, they are looking for low-cost products and software that can be customized; have track records that prove they can hold up in even the most difficult of markets; integrate well with other investment vehicles; and guide them on which taxable and qualified assets to draw down or annuitize first.

Thinking of themselves as "air-traffic controllers," they are addressing every aspect of retirement income and, therefore, are partnering with other professionals, including career counselors, nursing home specialists, CPAs and lawyers.

In sum, they want better guidance, training, software and products.

Retirement income practices are no longer just about asset management and cash flow, risk protection, insurance, charitable giving, tax and estate planning and wealth transfer. The most successful retirement income advisers expanding their reach to help their clients with their total net worth and personal concerns, including the sale of a small business, stock options, real estate, pensions and insurance policies. What's more, they are offering advice on spending habits, travel, relocation and mortgages, longevity, nursing homes, family and emotional issues, second careers and personal development.

Most of the 100 advisers interviewed for the report acknowledged this "soft" side to the retirement-income puzzle. This means, the report said, "helping the client envision what daily life in retirement will be like, finding ways for a client to continue to contribute to society once retired, and assisting clients in overcoming fears of living without a regular employment-based paycheck. Some advisers position the combination of financial and emotional support very explicitly as part of their business approach, such as life coach or retirement adviser."

As one adviser put it, "Ultimately, given the extensive emotion, risk and fear that accompany retirement-related issues, serving these clients requires a deep, trusting relationship that reflects an intimate understanding of these people on both a financial and psychological basis."

Another adviser commented: "The hardest skills to develop to serve the retirement market are relationship and empathy-listening to people, being responsive, gaining trust and connecting with clients."

Thus, in setting up an account with a retiree, these advisers­­-who charge only a percentage for assets under management-have three to four complementary meetings totaling three to six hours with clients before presenting a plan, which itself takes between five to nine hours to formulate. Following that, they meet annually or semi-annually with clients to monitor how well their situation is tracking to plan.

Though retirement-income formulas vary widely among investment professionals, at the heart of every plan is cash flow. About half are eschewing the new retirement income models, focusing on total return and performance through traditional products available, most notably mutual funds, and the standard recommendation of annual withdrawals of 4% to 6%.

The other half are taking a varied, asset pool approach, where they develop segregated portfolios to spread out investors' risk over various five-year time horizons, with near-term portfolios invested in safe instruments and the rest in aggressive growth.

Of importance to fund companies developing retirement income products, regardless of their approach, is that advisers are mainly building portfolios with mutual funds, exchange-traded funds, annuities, separate accounts and short-term vehicles, rather than the newer retirement income or annuity guarantee riders coming to market. They say they are waiting for best practices on these newer investment solutions to evolve, and that they don't have the time to judge them early on in the innovation curve.

They add that most fund companies are doing a poor job of marketing to them, differentiating their products or justifying how as a sum of the parts, their fund can make the greater portfolio whole.

As more innovative, complicated products hit the market, however, it appears that the asset-pool approach will take greater hold.

As one adviser aptly understood it: "Distribution planning requires a different logic than accumulation. In accumulation planning, the goal is to maximize returns for a given level of risk. For distribution planning, the goal is to meet income needs and not to achieve the highest rate of return. Using different pools of money insures that income needs can be met over the short- and long-term horizons."

Amazingly, 64% of the advisers surveyed use models projecting life expectancy beyond age 90, with 37% using models for ages 91 to 95, and 27% for ages 95 to 100. Most are also applying different rates of inflation to different costs, healthcare being one of the most aggressive areas because of their fear of steeply rising medical costs.

It should also be noted that advisers who have devoted most of their time to retirement income do not believe a mass-market approach is possible, which is why the majority is focusing on clients with $500,000 or more of investable assets. They themselves can empathize with the challenges of having enough to live on in retirement, as the majority are older than 55, have worked in the business for at least 20 years and generate $1 million or more of fees a year off total assets of $100 million or more.

Evidently, retirement-income planning is working, which would be a great story for asset managers to get out. Advisers said they are confident their clients will lead comfortable lives throughout an extended retirement. As the report concluded: "Advisers are highly confident in their ability to serve their clients and feel very comfortable with the support they deliver. None of the advisers are worried or losing sleep over how their clients will deal with longevity-based challenges."

(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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