BOSTON, Mass., May 5, 2016–Half of all financial advisors say the majority of their business consists of pre-retiree and retiree financial planning – nearly 40 percent higher than in 2011, according to a new LIMRA Secure Retirement Institute study.
“Given so many Baby Boomers are retiring or preparing for retirement, it is not surprising that advisors are seeing more of their business dominated by the needs of these consumers. The Institute estimates that retiree households will control more than half of all investable assets (>$25 trillion) by 2023,” said Jafor Iqbal, assistant vice president, LIMRA Secure Retirement Institute. “Managing these assets and their de-accumulation for their clients will be very important for the foreseeable future.”
The study found advisors have expanded their retirement income planning services significantly since 2011. In particular, the number of advisors offering Social Security claiming strategies has more than doubled (33 percent in 2011 vs. 70 percent in 2016). In addition, required minimum distribution (RMD) planning, long term care, sequence of withdrawal planning and defined benefit pension claiming strategies all saw double-digit growth over the last five years (Chart). Overall, 8 in 10 advisors say they are spending more time on retirement income planning.
Both advisors and consumers believe minimizing the risk of running out of money and reducing portfolio volatility are two of the three most valuable services an advisor can provide in 2016. But researchers found that while advisors consider offering a realistic view of retirement lifestyle a valuable service, consumers say creating a formal written retirement plan is more important. Interestingly, advisors surveyed in 2011 listed formal written retirement planning as the second most valuable service, which aligns with consumers’ perspectives.
For those who are offering formal written retirement planning services, 9 in 10 advisors say it helps them better understand their clients’ goals, improves retention and increases their clients’ confidence in their retirement readiness. Earlier this year, an Institute consumer survey revealed pre-retirees and retirees with a formal written retirement plan are nearly three times as likely to feel very prepared for retirement compared with those without one (50 percent vs 17 percent).
On average, advisors recommend their clients invest one quarter to one third of their portfolio into guaranteed lifetime income products. Yet while 9 in 10 advisors agree that guaranteed lifetime income products provide clients ‘peace of mind’ in retirement and feel it is important to own them, there is also substantial resistance not to use the products in a clients’ portfolio because these products offer less flexibility: Nearly 4 in 10 advisors say that guaranteed lifetime income products compromise their ability to manage a clients’ portfolio as circumstances change.
When asked about the potential impact of the Department of Labor fiduciary rule, the majority of advisors (55 percent) acknowledge that the new rule will likely deter them from serving small investors and half say they will stop handling small rollover business.
“We are also concerned that the new DOL fiduciary rule may have a negative effect on advisors’ willingness to recommend guaranteed lifetime income products to their middle income clients,” noted Iqbal.
According to prior Institute research, 9 in 10 U.S. middle market households (assets between $100k-$249K) have assets in a defined contribution plan or an IRA and the majority of them expect to rely on those assets to fund their retirement.
The 2016 Advisor Survey was fielded in February and March 2016 and included 1,004 advisors who work primarily with individual investors. Advisors included broker dealers in a firm registered with the SEC and a member of FINRA, dually-registered financial advisors who can act as both registered investment advisors and as registered broker-dealers, and registered investment advisors (RIAs).