Although more advisors have come to understand how to manage portfolios in the current environment – in which transparency and an in-depth understanding of investors' needs have become paramount – a serious blind spot remains when it comes to the distribution phase of their clients' financial lives.
Across the industry, large numbers of advisors have yet to realize that this new era of heightened client expectations is not only rewriting the rules of asset accumulation and management, but is creating profound changes for the income distribution strategies they recommend for clients' retirement plans, as well.
The days when advisors could rely on outmoded rules of thumb such as recommending a flat 4% annual drawdown to get each client through retirement are long over. Clients' needs in the distribution phase are just as varied – and just as important – as those in the accumulation phase.
How can advisors remove the blinders and adapt to increasing client demands and regulatory developments? Here's a look:
1. Assess where clients stand on the spectrum of retirement income needs. Not every client has the same emotional and financial priorities in retirement. Some have a more acute need for guaranteed income, while others may have a higher risk tolerance. Some attach greater importance to maintaining cash reserves, while others are more focused on leaving a legacy.
Advisors must develop a clear view of each client's goals and priorities in retirement and adjust their recommendations accordingly. They also should seek to conduct fact-finding conversations using in-depth due diligence tools that can help them understand clients' motivations and goals during the distribution phase of their lives.
Thorough questionnaires that explore clients' concerns about income and retirement, with answers that can be scored, may reveal where clients stand emotionally and allow advisors to produce better financial plans.
Advisors also would benefit from learning more about the potential advantages of specific products to address their clients' varying needs more effectively, including annuities. In some cases, advisors may have unjustified biases against using such products, while others may lean on them too heavily.
Either way, advisors should not let their blind spots or predispositions influence how they create financial plans.
2. Learn newer strategies and how to adapt them to each client's goals. Advisors today have far more options for retirement income distribution planning than they had in the past – and for tailoring those approaches to suit clients' needs.
In addition to systematic withdrawal plans, advisors should seek education on more flexible approaches, such as the time-segmented income distribution model and annuity options with guaranteed minimum withdrawal benefits.
