Retirement income planning has become a significant or core part of business for nearly three quarters (73 percent) of financial advisors, but these same advisors may be flying blind when it comes to assessing whether clients are on track to achieve sustainable retirement income.
This is according to the Financial Professional Outlook (FPO), a quarterly survey of U.S. financial advisors from global asset manager Russell Investments.
According to the survey, there is a clear void of consensus around how to measure whether retired clients are on track with their plans to generate income from investment portfolios. The largest proportion of respondents (34 percent) said they measure clients’ retirement plans based on preservation of principal after distributions, followed by the portfolio’s maintenance of a projected rate of return (20 percent). Only 15 percent of advisors say they assess the net present value of clients’ projected assets against projected liabilities to gauge whether they are on track, which is the method Russell recommends advisors use. Russell calls this concept the “funded ratio.”
“Advisors and their clients need a meaningful reference point to discuss sustainable income in retirement, and preservation of principal or a rate of return hold very little meaning for an investor trying to fund a desired retirement lifestyle,” said Rod Greenshields, consulting director for Russell’s U.S. advisor-sold business. “This reference point needs to be tied to actual desired outcomes. Yet today, very few advisors are approaching retirement income planning in this way.”
The current iteration of the FPO survey includes responses from 321 financial advisors working in more than 100 national, regional and independent advisory firms nationwide. The survey was fielded between August 5 and August 19, 2013.