Retirement Income Practice Management Whitepaper. Copyright 2006 FMR Corp.

1. Adapting a Practice for
Retirement Income Planning insigHTs
H e l p i ng advisors FaCe CHalleng e s a n d
Ca pT U re THe opporTUni TY
Sharing our Knowledge for Your Success
exeCUTive sUMMarY Contents
How to remain competitive and thrive amid SeCtIon 1
the shift to retirement income planning the changing landscape ...............2
SeCtIon 2
Financial advisors have begun to feel the effects of a shift Understanding the
that will change the nature of their business, possibly forever. challenges facing advisors ............4
.
Millions of Americans are about to retire, and millions more SeCtIon 3
How to thrive in a
have begun to realize that planning for retirement is a priority
changing market ...........................6
and a challenge that may require the services of an advisor.
ConClUSIon ............................15
.
the shift toward retirement income planning presents tremendous
challenges and opportunities for advisors. Providing retirement income
planning services is time consuming, and retired clients tend to generate Principal Data Sources
less revenue from commissions as they are drawing down assets and this paper is the product of Fidelity’s
extensive analysis of industry trends
shifting to more conservative portfolios. on the other hand, the opportuni-
and practice management processes,
ties are tangible. Clients are clearly looking for retirement income planning and is supported by insights from in-
services, and they may be willing to change advisors to get them. now is the depth advisor interviews and industry
time for advisors to offer retirement-related planning products and services research including the Fidelity Advisor
– before someone else does. 2006 Survey of Investors at Retirement
and the Fidelity Advisor 2005 Survey
this paper presents strategies for adapting a business to remain competitive of Advisors on Retirement Income.1
in this changing environment, including: how to become proficient in
retirement issues; how to differentiate a practice by focusing on health care;
how to build retirement income plans; how to adapt business and revenue
models; and how to acquire new retirement income planning clients.
Fidelity believes that advisors who successfully manage the shift toward
retirement income planning will continue to thrive in their industry.
not FdiC insured • May lose value • no Bank guarantee
For invesTMenT proFessionals

2. SECTIOn 1
The changing landscape
Fidelity believes that three of the Yet capitalizing on this opportunity
most powerful socioeconomic is challenging. Retirement income
trends in America today – the planning is more complex and time
aging population, rising health intensive than asset accumulation
care costs, and the shift toward and may generate less commission
greater individual responsibility for revenue than traditional investment
financing retirement – are having a product sales. to overcome these
major impact on the U.S. economy, challenges, advisors may need to
on investors, and perhaps most adapt their practices to this new
profoundly, on investment environment and address some
professionals. tough questions:
Investment professionals, notably • How will they meet the additional
financial advisors, are beginning to time demands of retirement
experience a sea change in their income planning?
industry. Advisors who have been • Should they expand their product
focused for years on helping people offering to meet clients’ increas-
accumulate assets are now being ingly complex needs?
asked to help retirees distribute
• How will they adapt revenue
those savings to create lifetime
models to capture the emerging
income. this shift represents a
opportunity?
major opportunity to help current
and future retirees properly plan for
their retirement income needs.
The drivers of change
an aging population: 43% of clients in a typical advisor’s book are retired or will retire in the next five years,2
and that number is expected to rise quickly as 76 million baby boomers move into and through retirement.
rising health care costs: Retirees will be responsible for far more of their own health care expenses than in
previous generations. In 1993, 40% of companies with 500 or more employees offered retiree health care
coverage, but by 2004, only 20% did.3 this trend has staggering implications: Fidelity estimates that a healthy
65-year-old couple retiring in 2006 needs current savings of $200,000 to $330,000 to supplement Medicare
and cover out-of-pocket health care costs.4
growing personal responsibility for retirement: Americans are facing greater responsibility for financing
their own retirement. only one in five households is currently eligible to receive a pension in retirement, and
Social Security, once the foundation of retiree income, now provides only 20% of the average household’s
retirement income.5

3. FaCing THe opporTUniTY exHIBIt 1
– and CHallenges – Head on Pre-retirees may change advisors to get the services they need
the time to answer these questions
is now, before an aging client base
migrates to professionals who offer
better-targeted retirement products no change 25%
and services. Advisors need to offer
75% Added or
income planning services to remain switched advisors
competitive. within 1 years
As exhibit 1 shows, in the 15 of retirement
years prior to retirement, three
out of four pre-retirees switched to
or added a new advisor. If advisors
Source: McKinsey Co. “Managing Retirement Income: Innovative Strategies to Capture
can adapt their business to better and Retain Retirement Income,” 2006.
retain pre-retiree clients, they may
be able to develop an important
source of future retirement income the recognition of the importance • 94% of advisors surveyed by
planning business. of an income plan combined with Fidelity expect their business to
the growing number of Americans grow over the next five years as
the opportunity for advisors arises
moving into retirement translates a result of offering retirement
from the fact that many investors are
into a tremendous amount of income planning, and nearly a
aware that they need some sort of
money – and clients – in motion. third expect their business to at
financial plan in retirement, and they
there could be $1.5 trillion in least double.9
are looking for help in building it. •
seven out of ten clients surveyed rollovers from now until 2010.7
indicated that a retirement income Americans aged 60 and over
• Fidelity believes that profes-
plan was “very” or “extremely” already hold $10 trillion in assets, sionals who provide retirement
important, and when asked how and this figure is expected to rise
they would create such a plan, more income planning services will be
to nearly $20 trillion by 2012.8
than half expected to seek the in a strong position to attract
services of a financial advisor.6 new clients and capture a larger
share of existing clients’ assets.
We also believe that advisors
may be vulnerable if they fail to
in any industry, change creates winners and losers adapt to the industry’s changing
History is filled with examples of businesses and industries that demographics as competition
either failed to adapt to new realities or successfully changed in for retirement income planning
order to capitalize on emerging opportunities. the shift from film
clients intensifies.
to digital photography crippled slow-moving companies while
rewarding those that embraced the new technology. typewriter
manufacturers either reinvented themselves after the introduction
of the personal computer or closed their doors forever.

4. SECTIOn
Understanding the challenges facing advisors
traditional asset accumulation-based business models may not be well
suited to a business with greater focus on retirement income planning.
How can advisors hone their business models, expand their skill set, and
remain profitable? they can start by fully understanding and confronting the
three primary challenges facing them: increased complexity, greater time
intensity, and changing practice economics.
inCreased CoMplexiTY begin to realize that for retiree
Retirement income planning is clients, “product allocation” may
more comprehensive than the be every bit as important as asset
accumulation process. It not only allocation is for clients focused on
requires analyzing clients’ expecta- accumulating assets.
tions and complete financial details; Finally, offering new products could
it demands an understanding of necessitate additional education
the key risks facing retirees, such as or certifications and will almost
rising health care costs. certainly change revenue streams.
Developing income planning exper-
greaTer TiMe inTensiTY
tise may also require learning about
Building retirement income plans
and offering alternative products.
requires deeper, more time-
nearly 60% of Americans between
intensive levels of exploration than
the ages of 55 and 70 surveyed
is typically required when creating
indicated that they would like to
savings plans. As advisors increas-
discuss critical illness insurance,
ingly service retirees, they will likely
long-term care insurance, longevity
spend more time preparing for and
insurance, or reverse mortgages
serving each client than before,
with their advisor.10 Advisors may
which could force them to reduce
exHIBIt 2
the total number of clients they
serve or spend less time on discre-
Hypothetical comparison of time allocation for accumulation-focused vs.
income planning-focused practice tionary tasks.
exhibit 2 shows that, assuming
Accumulation- Income Planning-
Focused Focused various activities will take longer in
Activity Hours/Client Hours/Client Change an income planning-focused prac-
Client planning/meetings 2.81 4.21 +50%
tice, advisors may need to increase
the time spent per client by about
Client servicing 1.25 1.50 +20%
20%. As a consequence of this, they
training 0.73 0.87 +20% may have to reduce the number of
nondiscretionary tasks* 2.61 2.61 0% clients they service by about 20%.
In this hypothetical example, an
Research 0.94 0.94 0%
advisor who handles around 200
Hours spent per client** 8.32 10.12 +22% accumulation-focused clients would
be able to serve about 160 income
number of clients 200 164 -18%
planning clients.
* Operations, Trading, Administration Other.
** Sums may not be exact due to rounding.
Cerulli Associates Fidelity Investments analysis. See methodology and information on page 18.

5. Since training and client acquisition exHIBIt 3
will continue to be vital to advisors’ Impact of retirement income portfolios on advisor compensation
success, finding additional time
2.00
may require several new strategies,
Product Mix
including: r
iso -8% effect
dv
Increasing share-of-wallet a
• 1.75 s ed
cu Asset Allocation
per client fo
Annual Income Index
n- effect
tio -14%
• Utilizing technology and ula
m
cu
packaged products to become 1.50 Ac
more efficient
Systematic
• evolving compensation models Withdrawal
-26%
effect
and internal and external business 1.25
structures
these strategies will be explored
1.00
in detail in Section 3.
1 2 3 4 5 6 7 8 9 10
CHanging praCTiCe Years
eConoMiCs Source: Fidelity Investments analysis. See page 18 for data, assumptions, and methodology.
Building a profitable model for a
business in which assets are shifting
the resulting reduction of assets izing tangible benefits. they have
from accumulation to distribution
under management could have a found that creating income plans
requires an understanding of how
significant impact on compensation drives client satisfaction, asset
retirement income planning may
especially when compared to port- consolidation, and referrals.
impact advisors’ revenue. Advisors’
folios with ongoing contributions.
compensation may be negatively
affected by the following effects on exhibit 3 illustrates the incremental
Advisors building
retiree portfolios: impact on compensation from
retirement income plans
these effects, compared with that
product mix effect: Retirees may have experienced:11
of an accumulation-only advisor.
shift a greater proportion of assets
For advisors focused exclusively on
to fixed-income or money market • Improved client satisfaction:
retirement income clients, Fidelity
funds, which typically generate 0% more clients were “very
estimates that over a 10-year
lower commissions and trails. Also, satisfied” with their advisor
period the product mix effect could
they may move some assets to after building an income plan.
reduce their revenue by 8%; the
annuities or long-term care insur-
asset allocation effect could reduce
ance, possibly resulting in a shift • Greater asset consolidation:
income by another 14%, and a 4%
from asset-based to transactional 77% of investors would be
systematic withdrawal effect might
compensation. willing to move all their assets
erode income by 26% or more.
asset allocation effect: Retirees’ Higher withdrawal rates may erode to one place.
portfolios tend to be more conser- advisor compensation even further.
vative than younger clients’, which • More referrals: 9% of
Section 3 will explore strategies to
could reduce their growth potential help mitigate these effects. investors who were “very
and may limit the growth of advi- satisfied” with their advisor’s
sors’ assets under management. income planning can have a
positive effect income planning service did
systematic withdrawal effect:
on the other hand, advisors who or would refer someone to
Retirees will likely begin drawing that advisor.
are offering retirement income
down assets to fund retirement.
planning services are already real-

6. SECTIOn
How to thrive in a changing market
Advisors can evolve and position their practice to improve client satisfaction,
consolidate assets, and drive referrals with retirement income planning.
Fidelity believes successful advisors should consider the following ideas, and
use them in conjunction to fully develop their practice.
1. Become proficient in all things retirement and create a retirement
specialist brand
2. Use health care knowledge as a differentiator
3. Combine income planning with effective client management strategies
4. evolve to a more efficient, profitable business model
5. refine client acquisition strategies for retirement income planning
1. BeCoMe proFiCienT in develop retirement planning
all THings reTireMenT knowledge
and CreaTe a reTireMenT
Advisors can build income planning
speCialisT Brand
knowledge by doing the following:
Many Americans need and expect
more help from advisors with retire- • learn the five key risks to financial
ment planning. For example, fewer security in retirement, as outlined
than 25% of investors describe their in exhibit 4
current advisor as having “excel- • Understand withdrawal strategies,
lent” knowledge of long-term care tax implications, and regulations
or Social Security.12 For advisors regarding asset distribution
to stay competitive and deliver
• Stay abreast of changes in
successful retirement income plan-
relevant government programs
ning services, Fidelity believes they
including Social Security and
will need to develop a deep under-
Medicare
standing of retirement issues.
• Be able to answer questions
about income strategies, working
in retirement, and managing
health care costs
exHIBIt 4
The five key risks
longevity Many people underestimate their life span and risk outliving their assets.
Health Care expenses Rising health care costs coupled with inadequate health care coverage can have a devastating
impact on a retirement income plan.
Inflation Inflation increases the future costs of goods and services and may erode the value of assets set
aside to meet those costs.
Asset Allocation Retirees with a portfolio overly concentrated in conservative investments expose themselves
to a greater risk of outliving their assets.
Withdrawal Rate Aggressive withdrawal rates increase the likelihood that retirees will deplete their assets
prematurely.

7. offer a broader range of exHIBIt 5
products to meet evolving The gap between what advisors offer and what clients want
investor needs
Fidelity’s research shows that clients are interested in more products than
While clients are saving for retire- their advisors are discussing with them. For example, 28% of investors said
ment, it may be sufficient to help they would like to discuss long-term care insurance with their advisors, yet
them build a portfolio with appro- only 8% were currently obtaining it through their advisors.14
priate asset allocation by investing
in mutual funds and individual 30%
securities. With retirement income Currently obtain from advisor
planning however, advisors may 28% Would like to discuss with advisor
25%
need to shift their focus from asset
allocation to “product allocation.”
20% 21%
examples of appropriate products
may fall into these areas:
15%
growth: Stocks, mutual funds
13%
(including asset allocation funds),
10% 11%
and managed accounts
8%
income producing: Income- 5%
oriented mutual funds, managed 5%
accounts, bonds, CDs and other 2% 2%
0%
bank deposits, and reverse
Critical illness long-term care longevity Reverse
mortgages13 insurance insurance insurance mortgage
guaranteed income streams:^
Annuities to complement Social Create a retirement • Invite clients and prospects to
Security and pensions specialist brand retirement planning seminars and
there are many ways to establish other group outreach activities.
Health care-related insurance
and communicate a retirement
products: long-term care insurance
specialty. Keep in mind that
and critical care insurance Take the next steps
advisors should work with their
the financial services and insurance home office to ensure that any • identify key retirement
industries have introduced many of risks, including longevity
branding is consistent with their
these products, and new innova- and health care costs,
firm’s guidelines. among others.
tions will undoubtedly appear in the
• Reference retirement specializa- • research retiree-specific
years ahead. Annuities in particular
tion in correspondence, business topics such as social
may warrant a closer look, due to
cards, letterhead, and other security and long-term
developments in the areas of living care insurance.
forms of communication.
benefits and longevity insurance.
• Be sure to offer products
• Consider obtaining retire-
Regardless of which products they that income planning clients
ment-related certifications, and want and need.
choose to offer, advisors will need to
reference them as appropriate in
stay current with retirement-oriented • investigate implications
communications. of offering new products,
products, consider obtaining new
licenses, and understand not only • Craft an “elevator pitch” – a brief including licensing, training,
how these products might be summary of retirement capabili- and compensation.
included in retirement portfolios, ties and a few probing questions • Create and communicate a
but how a changing product mix can about retirement preparedness to retirement specialist brand.
impact compensation. ask prospects and clients.
^ Subject to the claims-paying ability of the issuing insurance company.
7

8. 2. Use HealTH Care KnoW- exHIBIt 6
ledge as a diFFerenTiaTor Health care conversations at every age
Research shows that health care
Client age Conversation starters
costs are the primary cause of
anxiety for retirees and pre- Under 50 • How long do you expect to live in retirement? What are you
retirees.15 Providing information doing to ensure that you can afford health care?
and education around the financial • A healthy 65-year-old couple today can expect to pay between
aspects of health care in retirement $200,000 and $330,000 in out-of-pocket medical expenses in
retirement.20 What are you doing to prepare for these costs?
can serve as a powerful differen-
tiator for advisors looking to stand
out from the competition. 50–59 • If you plan to retire before age 65, how will you pay for health
care prior to becoming Medicare eligible?
Understand important health • there is a 50% chance that at least one member of a 65-year-
care facts old couple will live to 92.21 Have you considered purchasing
Resources on health care are long-term care insurance for yourself and your spouse?
fragmented and hard to find,
and governmental programs like 60 and older • What are your options should you or your spouse need critical
Medicare are complex and change care? Currently, one in five U.S. adults cares for a senior or an
adult with disabilities.22
frequently. As a result, advisors have
• What steps have you taken to ensure that your spouse’s
an opportunity to proactively fill the
standard of living will not be adversely impacted should you
need for health care information. become critically ill or need long-term care?
Consider these important facts:
• 46% of investors surveyed believe
it is important for their advisor
to have detailed knowledge of get familiar with health care- discuss health care issues with
related products and programs clients at every age
long-term care planning; and 39%
would like to discuss health care Advisors may want to expand Advisors who communicate their
coverage with their advisor.16 their knowledge of programs like knowledge of health care issues
Medicare and CoBRA and consider may stand out in clients’ minds.
• Americans may be underesti-
becoming licensed to sell health Making health care a part of every
mating their total out-of-pocket
care-related products, which may retirement planning conversa-
health care expenses in retire-
include the following: tion, and offering strategies for
ment by more than 60%.17
• Medigap insurance preparing for health care costs, is
• Health care is the second largest an important and effective differen-
expense in retirement (following • Prescription drug plans
tiator. exhibit 6 offers some specific
housing), and is perhaps the • long-term care health care conversation starters.
biggest risk to the success of a
• longevity insurance
retirement income plan.18 long-
term care, catastrophic care, and • Health insurance Take the next steps
general health care expenses Advisors might also choose to • expand knowledge of
may reach hundreds of thousands foster relationships with health health care-related
care experts and health insurance products and programs.
of dollars during retirement.
providers, or try a combination of • investigate alliances with
• Americans retire, on average, health insurance providers.
at age 63,19 making strategies both. this way, advisors may be
able to refer clients with specialized • discuss health care issues
for covering health care without
needs to appropriate providers. with clients of all ages.
eroding assets prior to full Medi-
care eligibility more important.

9. 3. CoMBine inCoMe plan- step 3: Fund discretionary building their assets. In retirement,
ning WiTH eFFeCTive ClienT expenses by establishing appro- however, planning for income
ManageMenT sTraTegies priate investment strategies and streams with a linear projec-
to fully develop their retirement withdrawal rates. tion based on average returns
business, advisors will need to can create a misleading sense
step 4: review the plan annually
know how to develop and execute of certainty about a portfolio’s
to make adjustments that reflect
thorough, rigorous retirement chances of success, given the
changes in clients’ situations as they
income plans. Yet the process must unpredictability of financial markets.
progress through retirement. this is
be scalable in order for the service
an essential step for advisors, as it Monte Carlo simulations can be
to be profitable. once built, advi-
provides an ongoing opportunity to highly useful in income planning.
sors need to encourage clients to
strengthen client relationships and Instead of a single answer based on
put their plans into action.
meet any additional client needs. historical average returns, a Monte
As illustrated in exhibit 7, Fidelity Carlo simulation examines hundreds
Use scenario-based modeling
believes there is a definite retire- of possible outcomes to show prob-
ment income planning process: Fidelity believes that scenario-based
abilities of reaching a goal.
modeling – considering probability
step 1: inventory expenses and In short, retirement planning
ranges based on past market events
income by estimating essential and cannot be done “on the back
and hypothetical possibilities rather
discretionary expenses, as well as of an envelope” or with a simple
than historical averages – can be
all sources of income. calculator; to be done well it
a better way to help clients assess
step 2: Cover essential expenses, how well their retirement income requires sophisticated yet
including health insurance, by plan may meet their income needs. easy-to-use retirement income
ensuring that these costs are planning tools.
Referring to historical averages
covered first by predictable sources
may have some utility in the accu-
of lifetime income such as Social
mulation phase. It can encourage
Security, pensions, annuities, or
younger savers to look past
sustainable long-term withdrawals
short-term volatility and continue
from assets.
exHIBIt 7
Creating a retirement income plan
reliable income sources essential expenses
Social Security Cover Essentials
Food
Company Pension Clothing
etc. Shelter
Health Care
p
Ga
etc.
Convert assets
r
ve
for Cash Flow
Co
assets Systematic discretionary expenses
Withdrawal Plans
Mutual Funds Fund travel
Stocks/Bonds Annuities Discretionary entertainment
CDs Expenses Club Memberships
Real estate etc.
etc.
9

10. encourage clients to put their exHIBIt 8
income plan into action Investors’ withdrawal rate expectations for funding retirement
Having a well-constructed retire-
ment income plan is of no use if a Withdraw
client does not implement it. When % or less
retirement is imminent, errors can
15%
be difficult to correct. Procrastina-
tion, risk aversion, unrealistic return 44% Withdraw
expectations, or misunderstanding % or more
the impact of withdrawal rates can Don't know how 41%
have real consequences for retirees. much to withdraw
It is critical for advisors to help
clients facing retirement understand
the situations they face and make
the right decisions regarding their Source: Fidelity Advisor 2006 Survey of Investors at Retirement.
income plans.
exhibit 8 illustrates that many
retirees may have unrealistic Help clients implement the plan
expectations for withdrawal rates. Some strategies advisors may find Take the next steps
Among investors who have not useful when helping clients make
• Know the elements of an
built a retirement income plan with decisions include: effective income planning
an advisor, 85% either don’t know • Using guarantees associated with process.
how much to withdraw, or are at variable annuities23 to encourage • Use an income planning tool
risk of drawing down their assets risk-averse clients to take on that incorporates scenario-
too quickly. additional market exposure. based modeling.
Fidelity research shows that with a • Communicate the impor-
• Diverting dividends into a liquid
balanced portfolio, even a modest tance of taking action on an
account for clients who are reluc- income plan.
5% annual withdrawal rate could tant to take profits or rebalance
exhaust assets in 20 years – less • emphasize the relationship
equity investments. between asset allocation
than the life expectancy of many
• Using Monte Carlo simulations and withdrawal rates to
65-year-old retirees. Higher with- help clients make informed
to demonstrate the likelihood of
drawal rates could put investors at decisions.
success of various configurations
even greater risk of running out of
of asset allocations and with-
money in retirement.*
drawal rates.
While a 5% withdrawal rate may
• explaining that long-term care
be reasonable for some investors,
insurance isn’t about paying for
advisors should review every client’s
a nursing home, but rather about
portfolio allocation to ensure its
staying out of one for as long
growth potential can sustain the
as possible and maintaining a
client’s desired rate of withdrawal.
spouse’s standard of living.
Monte Carlo simulations can help
• Including significant others in
clients settle on prudent asset allo-
decisions; something that seems
cation and withdrawal rates, which
unnecessary to one partner may
may help protect client portfolios
seem vital to the other.
and also preserve advisors’ assets
under management.
* please see iMporTanT methodology and information on page 18.
10

11. 4. evolve To a More eFFiCienT, leverage efficiencies Offer packaged products that
proFiTaBle BUsiness Model Advisors should consider utilizing require less servicing
to transition profitably to retire- tools and products that help Packaged products can be a
ment income planning, advisors streamline the income planning time-efficient approach to asset
must build efficiencies into their process. they may also want to allocation. lifecycle funds and
practice and adjust their compen- expand their professional networks funds-of-funds, for example, help
sation models. this may require to alleviate workloads and increase advisors use a smaller set of invest-
reassessing client value, considering efficiency. ment products and still meet the
new planning tools and prod- needs of many types of clients.
ucts, and expanding professional Utilize a retirement income
planning tool offering such flexible products
networks. Fidelity suggests four may help increase profitability, save
As their business grows, advisors
strategies to manage profitability. time, and satisfy a variety of clients’
may need a tool that makes the
identify high-value clients and asset allocation needs. Imple-
retirement income planning
increase share-of-wallet process scalable. An easy-to-use,
menting scaled-down but useful
Because advisors may have to services for lower-value clients may
yet sophisticated tool that demon-
reduce the number of clients they go a long way toward establishing
strates the viability of retirement
serve due to the time-intensive receptive, loyal clients who are in
income plans can help advisors
nature of retirement income plan- the process of building their own
become more efficient and offer
ning, it is important to maximize net worth. these clients may prove
higher-quality services. Specifi-
the value of each client. Identifying to be a source of revenue for many
cally, software that runs dynamic
high-value clients and increasing years to come.
simulations can go a long way
share-of-wallet are important factors toward helping advisors manage
in maintaining advisor compensation the complex, time-intensive task
levels. Advisors who can effectively of determining appropriate asset
raise client value may find them- allocations and withdrawal rates
selves increasing their compensation within an income plan.
levels within a retirement income
planning business model. exhibit
9 offers potential strategies for
achieving these objectives.
exHIBIt 9
Avenues for identifying high-value clients and increasing share-of-wallet
identify the need for more
assess total household worth Consolidate assets products and services
Building retirement income plans 68% of investors surveyed between Income planning may help identify
provides the advisor with a full the ages of 55 and 70 consoli- clients who might benefit from
picture of household assets, dated their assets as the result of additional products and services
including spousal assets and completing a retirement income the advisor may be able to offer.
assets invested with other firms, plan, and an additional 19% said
and can be a window to identi- they would likely consolidate.24
fying high-value clients.
11

12. Optimize a practice by restructuring and networking
Advisors may want to consider reorganizing their practice along functional lines to reinforce their retirement focus.
A successful practice may have a team-based approach that combines generalists with specialists who focus on
specific areas such as client acquisitions, accumulation, rollovers, and retirement income services.
In addition, establishing external relationships with insurance agents, accountants, attorneys, mortgage brokers, real
estate agents, and others can expand an advisor’s value proposition, as it may allow him or her to offer a broader
array of services. In firms that already encompass a variety of disciplines, advisors may want to strengthen relation-
ships with in-house resources.
exHIBIt 10
Expanding professional networks
network for a traditional practice network for a retirement-focused practice
Health Care
expert
Mortgage
Accountant Mortgage
Broker Accountant
Broker
Financial Advisor other Financial Advisor Real estate
Agent
Insurance Attorney Insurance Attorney
Agent
Agent
tax/estate
expert
offer alternative products to discuss retirement-oriented • Income annuities
that help generate new products with their advisor that • Reverse mortgages
sources of revenue they are not currently getting, such • long-term care insurance
Retirement-oriented products that as life insurance, long-term care
• Health insurance
clients purchase at the expense of insurance, or a reverse mortgage.25
invested assets present opportuni- offering these products may help
Products that advisors often recom-
ties to tap new income streams. retain clients who might otherwise
mend but don’t necessarily provide
And investors are looking for these look to a professional who offers a
include:
products: among Americans aged broader suite of options.
• Variable deferred annuities
55 to 70 who are not yet fully
retired, over half (51%) would like • life insurance
1

13. adopt a compensation model a fee-based model that is based
appropriate for a planning- on a percentage of assets under
Take the next steps
based practice management using a pricing
• Use information gathered
In the context of retirement plan- formula that takes into account
during the retirement
ning, a fee-for-service model may a client’s net worth, income, and income planning process to
be advantageous for advisors. complexity of planning needs. increase share-of-wallet.
exhibit 11 outlines the results of • adopt a tool that helps
a hybrid model that draws income
Fidelity’s research showing 38% of make retirement income
from commissions and fees for
clients prefer fee-for-service over planning easy and scalable.
service: As a practice’s product mix
other compensation models for the • Use packaged products
changes, charging fees for services
development, execution, and moni- and other flexible products
such as building retirement income
toring of their retirement income appropriate for lower-value
plans could recapture revenue lost
plans. Further, 21% expect to pay clients.
from declining sales of commission-
$1,000 or more for this service.26 • Consider selling additional
based products.
retirement-oriented prod-
And while 32% of respondents
there are risks inherent in either ucts that meet client needs.
currently pay their advisor through
of these models. Fees can be • explore new organizational
commissions or transaction charges,
an inconsistent revenue source. models and expand external
only 17% would prefer that model professional networks.
Because collecting fee revenue
for retirement income planning. A
directly from clients is different from • Move away from commis-
strong majority – 66% – prefer to sion-based revenue models
automatically collecting commis-
pay their advisor either a fee-for- to fee-based models.
sions and trails, advisors need to
service or a fee as a percentage of
be prepared for the change if and
assets under management.26
when they choose to redesign their
therefore, a revenue model that compensation model. of course,
relies exclusively on commissions advisors should consult with their
and trails may not be well suited home office about licensing and
to a practice providing retirement compensation requirements.
income planning. As a result,
revenue models are likely to evolve
into one of two forms:
exHIBIt 11
Payment preferences for retirement income planning services
payment choices % of respondents*
Fee-for-service 38%
Percentage fee based on assets managed 28%
load, commission, or per transaction charge 17%
Flat or hourly fee 12%
other 6%
amount people are willing to pay for initial comprehensive
% of respondents*
retirement income plan
$1,000 or less 50%
over $1,000 21%
Do not know 28%
Source: Fidelity Advisor 2006 Survey of Investors at Retirement.
* Sums may not add to 100% due to rounding.
1

14. 5. reFine ClienT aCqUisiTion Talk with 01(k) plan sponsors Reach out to clients at trigger points
sTraTegies For reTireMenT Advisors may find that offering throughout a lifetime, there are
inCoMe planning
retirement income planning services threshold dates that allow (or
Prospecting is an essential part of to 401(k) plan sponsors may help require) investors to take action
managing any successful practice. drive client acquisitions and build regarding their finances. these
Until an advisor’s book is gener- relationships in advance of income dates can be catalysts for action
ating enough new clients to make planning needs. the approach can around retirement income planning,
prospecting unnecessary, active begin with a simple question to the since clients may be unsure of what
client acquisition strategies are employer such as, “Is your current to do when each date arrives.
worth considering. In particular, advisor talking to your employees age 50: eligible for catch-up contri-
applying acquisition strategies that about how they might convert butions to some retirement plans
are targeted to retirement income their plan savings into a stream of
planning may put advisors at the age 55: eligible to withdraw assets
lifetime income?” this approach
front of their field. from tax-deferred defined contribu-
may help position advisors to
tion plans if separated from service
Generate referrals consistently garner rollover assets – a potentially
reliable source of income planning age 59½: May be eligible to
With retirement income planning,
opportunities. withdraw assets penalty free from
referrals are a key element of
most retirement plans
success. In fact, 87% of clients who Partner with an advisor whose
completed a retirement income practice is at a different stage age 62: eligible for Social Security
plan with an advisor did or would As older advisors retire, their books age 65: eligible for Medicare
refer someone to their advisor.27 of business can be a highly valu-
age 70½: Must begin required
Clients who have yet to complete a able source of clients for younger
minimum distributions29
retirement income plan cite friends advisors. At the same time, advisors
and family as the number one with a concentration of older clients As well, there are time-specific
source for how they would find an may benefit from aligning their events such as taking a lump-sum
advisor.28 Advisors should keep in business with an advisor whose distribution from a retirement plan
mind that many of their industry book consists largely of accumula- that can trigger discussions about
counterparts may not pursue this tion-focused clients. Advisors who retirement income planning.
market because of a lack of knowl- reach out to other advisors may
edge. Garnering referrals after find it easier to build a practice that Take the next steps
completing a retirement income successfully combines accumulation
• after every interaction, ask
plan is a simple, proactive way to and retirement income planning
clients if they know someone
tap into this growing opportunity. services. who would benefit from a
Develop a retirement-focused niche retirement income plan.
Hold retirement-related referral
Advisors might consider focusing events • develop a retirement-focused
Social events such as dinners or niche.
on a particular company, industry,
or geographic area and becoming wine tastings combined with a • Talk to 401(k) plan sponsors
familiar with retirement issues casual retirement seminar are great about income planning.
relevant to that market. Creating a avenues to gathering referrals • Tap advisors whose practices
specialty around a specific comp- and to build loyalty with existing are at different stages.
any’s benefits and employee needs clients. Another effective tactic • Hold retirement-related
can be a rich source of grassroots for generating new business is to referral events.
referrals and rollover dollars from form a client advisory council: Meet • Create an advisory council
employees who are changing jobs periodically with a small group of consisting of top clients.
or retiring. top clients to elicit feedback, brain- • reach out at trigger points
storm new ideas, and solidify those and schedule meetings prior
to these events.
relationships.
1

15. COnCLUSIOn
Financial advisors are experiencing profound changes caused by shifting
socioeconomic factors. Many investment professionals are quickly realizing
that they can no longer ignore the fact that an aging population, rising
health care costs, and increasing individual responsibility to fund retirement
will necessitate changes in their practice.
Income planning services are more consultative and complex than asset
accumulation services, and as a result, they may also be more time
intensive. Income planning clients also are likely to generate less revenue
for advisors from commissions than accumulation-focused clients.
However, the shift toward retirement income planning presents tremendous
opportunities for investment professionals to increase client satisfaction,
consolidate assets, and generate referrals. Fidelity research clearly shows
that retirees and pre-retirees recognize the need for retirement income plan-
ning services – and are willing to pay for it.
the question is not if or when investment professionals should respond,
but how. Advisors need to acquire the expertise necessary to provide
retirement income planning services and then learn how to deliver those
services profitably.
this paper has presented strategies for addressing these challenges.
Fidelity believes that in order to thrive in this changing market, advisors
must advance their capabilities and take the following steps:
1. Become proficient in all things retirement and create a retirement
specialist brand
2. Use health care knowledge as a differentiator
3. Combine income planning with effective client management strategies
4. evolve to a more efficient, profitable business model
5. refine client acquisition strategies for retirement income planning
For all the uncertainty created by the changing landscape, the business
basics for operating a successful practice have not changed. Advisors who
identify and adopt best practices, seek out industry expertise and support,
and successfully build a retirement brand can thrive in the new environment.
Fidelity believes that successful advisors will embrace the changes in their
industry and continue to prosper by helping their clients achieve financial
security – the ultimate measure of an investment professional’s success.
1

16. AbOUT FIDELITY ADvISOR
RETIREMEnT InCOME SERvICES
Helping advisors protect, strengthen, and build their practice
Fidelity Advisor Retirement Income FARIS has shared the insight that
Services (FARIS) is a comprehensive Fidelity has gained from conducting
program designed to help financial in-depth continuing education
advisors meet the growing demand seminars, working with advisors all
for retirement income planning and over the country, and developing
subsequently strengthen client rela- roughly half a million retirement
tionships and grow their business. income plans.
our goal is to help our profes- Fidelity’s income planning approach
sional clients become specialists in has helped many advisors adapt
retirement income planning – and their practice and successfully
give them a true advantage in the deliver retirement income plan-
marketplace. ning services. our proprietary
the FARIS team conducts extensive methodology is documented and
proprietary research by interviewing explained in white papers, seminars,
hundreds of investors and advisors brochures, and workbooks that we
each year. our team analyzes key continue to update and enhance
industry and regulatory trends for for advisors.
their potential effects on our clients’ If you would like to learn how
business, and we offer strategies Fidelity Advisor Retirement Income
for tackling emerging issues like Services can help you grow and
practice management and retire- strengthen your business, please
ment risks. visit advisor.fidelity.com or contact
the knowledge we gain from our your Fidelity representative today.
research goes directly into educa-
tional and sales tools for advisors.
Since being introduced in 2004,
1

17. nOTES
1. Fidelity advisor 2006 survey of inves- 9. Fidelity Advisor 2005 Survey of Advisors
tors at retirement: on Retirement Income.
Conducted by NFO Research on behalf of
10. Fidelity Advisor 2006 Survey of Investors
Fidelity from July 5 to July 12, 2006, this on-
at Retirement.
line survey included 813 investors between
the ages of 55 and 70 with investable assets 11. Ibid.
of $250,000 or more. The margin of error for
this study is +/- 1.8% at the 95% confidence 12. Ibid.
level.
13. Reverse mortgages are an option if a re-
Fidelity advisor 2005 survey of advisors tiree wishes to tap equity and remain in his or
on retirement income: her home, but the costs of these loans may
Conducted by Fidelity Investments Research still be quite high and there are significant
Analysis between June 6 and June 10, risks that also must be weighed carefully.
2005, respondents were contacted by letter 14. Fidelity Advisor 2006 Survey of Investors
and by phone. The sample included 334 ad- at Retirement.
visors with an average of 7 years’ experience
in the field. 15. National Association of Variable Annui-
ties, “2005 Financial Retirement Fears,” May
2. Fidelity Advisor 2005 Survey of Advisors 2005.
on Retirement Income.
16. Fidelity Advisor 2006 Survey of Investors
3. Employee Benefit Research Institute at Retirement.
(EBRI), Issue Brief 279, March 2005.
17. Spring 2006 Fidelity Retirement IndexSM;
4. Fidelity Employer Services Company; Fidelity Employer Services Company, Health
Health and Welfare Consulting. The esti- and Welfare Consulting, 2006.
mates of health care costs assume life expec-
tancy at age 65 of 17 and 20 years, for males 18. The Urban Institute, “Understanding
and females, respectively. A health care cost Expenditure Patterns in Retirement,” 2005.
inflation rate of 7% is used; underlying this 19. The Center for Retirement Research at
assumption are cost of service increase rates Boston College, “Work Opportunities for
that vary by type of service, ranging from Older Americans,” July 2006.
4% to 9%. The estimates are representative
of the amount needed in a taxable account. 20. Fidelity Employer Services Company;
A 5% after-tax rate of return is assumed on Health and Welfare Consulting based on a
savings in retirement. Medical costs are as- couple retiring in 2006.
sumed to be incurred uniformly in each year 21. Annuity 2000 Mortality Table, Society
in retirement after age 65. Estimates are cal- of Actuaries. Figure assumes a person is in
culated for an “average” retiree. Actual costs good health.
will vary depending on actual health status,
area, and longevity. Individuals who deviate 22. National Alliance for Caregiving, AARP,
from this average could require a smaller or 2004.
larger amount of savings. These estimates 23. Principal value and investment returns
assume that there is no employer-sponsored of a variable annuity will fluctuate and
post-retirement health care coverage. These there may be a gain or loss when money is
estimates assume that the retiree has tradi- withdrawn. Guarantees are subject to the
tional Medicare coverage, elects Medicare claims-paying ability of the issuing insurance
Part D, and, by virtue of their income level, company.
continues to receive the current government
Part B subsidy. These savings amounts do 24. Fidelity Advisor 2006 Survey of Investors
not consider the expected costs of expenses at Retirement.
related to over-the-counter drugs, dental 25. Ibid.
care, or nursing home care.
26. Ibid.
5. Social Security Administration, Office
of Policy, Income of the Aged Chartbook 27. Ibid.
2002, key sources of retirement income for
households with incomes of $40,000 or more 28. Ibid.
per year. 29. Roth IRAs do not require minimum distri-
6. Fidelity Advisor 2006 Survey of Investors butions, and required minimum distributions
at Retirement. from DC plans can be delayed until a later
age depending on the employment status of
7. Cerulli Quantitative Update: Retirement the participant.
Markets, 2005.
8. Federal Reserve Survey of Consumer
Finances, Cerulli Associates, “Retirement
Income: Positioning for Success,” 2005.
17

18. METHODOLOGY AnD InFORMATIOn
Exhibit : Advisor time assumptions
100% accumulation-Focused 100% income planning-Focused
Clients Clients
assumptions
Hours Hours per per client to transition from Hours Hours
% of time* per year** client accumulation to income§ % of time per year per client
Client Planning/Meetings 27% 562 2.81 +50% per client 33% 693 4.21
Client Servicing 12% 250 1.25 +20% per client 12% 246 1.50
training 7% 146 0.73 +20% per client 7% 144 0.87
operations 5% 104 0.52 4% 86 0.52
trading 9% 187 0.94 7% 154 0.94
other 2% 42 0.21 2% 34 0.21
Administration 9% 187 0.94 7% 154 0.94
Research 9% 187 0.94 7% 154 0.94
Client Acquisition 20% 416 n/a no change 20% 416 n/a
Hours per year 2,080 2,080
number of clients 200^ 164†
* Weighted average per advisor based on “Channel Comparison: Advisor Time Spent on Tasks,” Cerulli Associates, 2005.
** Assumptions of 2,080 hours worked per year.
§ Based on Fidelity analysis.
^ Assumption of 200 clients per year.
† 164 is the mathematical outcome based on the new assumptions in time spent per client.
Exhibit : Methodology and approach
accumulation-Focused advisor Compensation (top blue line)
Compensation estimates for a typical accumulation-focused advisor assume the advisor has 200 clients; each client has $400K in investable assets;
the advisor has a 50% share-of-wallet of each client; and net new client acquisition of 2% annually.
Assets are allocated across multiple products per Cerulli Associates analysis, “Channel Comparison: Advisor Product Mix, 2005.” Annual return
assumptions for accumulation client portfolios were 8% across the portfolio (which includes a range of products such as mutual funds, variable an-
nuities, and others) with the exception of 4% for fixed annuities and 3% for money market and other.
income planning-Focused advisor Compensation (bottom three lines)
Compensation estimates for an income planning-focused advisor assume the advisor has 164 clients; each client has $400K in investable assets;
advisor has an 86% share-of-wallet of each client; and net new client acquisition of 1% annually.
The assumptions for the incremental effects to the income planning-focused advisor change as follows:
• Product Mix Effect – For the second line from the top, the product mix is modified to reflect products in a typical hypothetical retiree’s portfolio.
• Asset Allocation Effect – For the third line from the top, the annual return assumptions are modified to reflect a more conservative portfolio as
follows: 5.3% across the portfolio with the exception of 4% for fixed annuities and 3% for money market and other.
• Systematic Withdrawal Effect – For the bottom line, a 4% withdrawal rate is assumed. Note: Higher withdrawal rates may result in a greater drop
in advisor compensation.
Commissions and trails vary by product and range from 30 to 550 basis points for commissions and 0 to 150 basis points for trails for both accu-
mulation-focused and income planning-focused advisors.
Annual Income Index – Using these assumptions, all compensation is estimated over a ten-year period and then indexed to year-one compensation.
Methodology for withdrawal rate example, p. 10
iMporTanT: The projections or other information generated by Fidelity investments retirement income planner regarding the likelihood
of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future re-
sults. over time, results may vary with each use.
Source: Fidelity Investments.
Hypothetical 5% withdrawal of assets held in an untaxed account invested in a balanced portfolio of 50% stocks, 40% bonds, and 10% short-term
investments. Several hundred financial market return scenarios were run to determine how the asset mixes may have performed. In 90% of the
scenarios, the portfolio produced an income stream for 20 or more years. The estimated returns for the stock and bond asset classes are based on
a “risk premium” approach. The risk premium for these asset classes is defined as their historical returns relative to a 10-year Treasury bond. Risk
premium estimates for stocks and bonds are each added to the 10-year Treasury yield. Short-term investment asset class returns are based on a
historical risk premium added to an inflation rate, which is calculated by subtracting the TIPS (Treasury Inflation-Protected Securities) yield from
the 10-year Treasury yield. This method results in what we believe to be an appropriate estimate of the market inflation rate for the next 10 years.
Each year (or as necessary), these assumptions are updated to reflect any movement in the actual inflation rate. Volatility of the stocks (domestic
and foreign), bonds, and short-term asset classes is based on the historical annual data from 1926 through the most recent year-end data available
from Ibbotson Associates, Inc. Stocks, bonds, and short-term are represented by the SP 500® Index, U.S. Intermediate Term Government Bond,
and 30-day U.S. Treasury bill, respectively.
The SP 500® Index is a registered service mark of The McGraw-Hill Companies, Inc., and has been licensed for use by Fidelity Distributors
Corporation and its affiliates. It is an unmanaged index of the common stock prices of 500 widely held U.S. stocks and includes reinvestment of
dividends. It is not possible to invest directly in the index.
1

20. Our commitment to your clients
You, Your Advisor, and Fidelity.
One goal – your financial success.
Like the market, your investment needs may certainly change over time.
Through our focus on insight, diversification, and dedicated support, you’ll know
that your advisor and Fidelity have the same goal as you – your financial success.
Experience leads to Insight
Your advisor has the professional focus and mission for helping you achieve
your financial goals. When you combine that knowledge with Fidelity’s 60 years
of investment insights, it results in intelligent options for you.
Investment choice leads to Diversification
Your advisor understands that being properly diversified is critical to your long-term
financial success – and diversification is the cornerstone of Fidelity’s philosophy.
Supported by a global research team, Fidelity offers extraordinary breadth and depth
of investment options across all asset classes, providing you and your advisor with
the advantages of choice.
Commitment leads to Dedicated Support
Fidelity delivers the attention, responsiveness, and dedicated support necessary for
your advisor and you, working together, to manage your assets the way you expect.
With your advisor and Fidelity behind you, you can be confident about making
well-conceived and informed investment decisions for today and tomorrow.
Copyright 2006 FMR Corp. All rights reserved.
Not NCUA or NCUSIF insured. May lose value. No credit union guarantee.
Fidelity Investments Pyramid Design is a registered service mark of FMR Corp.
Before investing, have your client consider the funds’ investment objectives, risks, charges, and expenses. Contact
Fidelity for a prospectus containing this information. Have your client read it carefully.
440250.1 Fidelity Investments Institutional Services Company, Inc., 82 Devonshire Street, Boston, MA 02109 1.834209.100
1106