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Dennis Gallant

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    Dennis Gallant Dennis Gallant Presentation Transcript

    • New Trends in ServingRetirement Income Clients Retirement Income Symposium October 4, 2012 Boston, MA GDC Research and Practical Perspectives
    • Focus of Today’s Discussion• Success factors in serving retirement income clients• Developing a more effective retirement income process and practice• Managing key retirement income challenges 2
    • Retirement Income Processes and Capabilities • No universal approach • Advisors differ in processes and capabilities • Two key segments emerge: Leaders and Laggards 3% Well Developed 43% Some But Not All 54% Limited/NoneSource: Trends in Advisor Delivery of Retirement Income - 2012 3
    • Key Differences of Leaders and Laggards Factor Leaders LaggardsAverage Client Assets Higher LowerAsset Consolidation Higher LowerCompensation Fee-based Mix of fees and commissionsPractice Management Less challenged More challengedEnhanced Capabilities “What” or content “How” or approachesDegree Client Concerns Moderate HighImpact Low Interest Rates Moderate HighSource: Trends in Advisor Delivery of Retirement Income - 2012 4
    • Focus on Retirement Income Pays Off for Advisors Change in Retirement Income Clients Served during 2011 2% 0.3% 11% 28% 59% Increased Significantly Increased Modestly No Change Decreased Modestly Decreased SignificantlySource: Trends in Advisor Delivery of Retirement Income - 2012 5
    • Key Benefits of Working with Retirement Income Clients Advisors by Focus on Retirement Income Practice Benefits Retirement Income Clients 24% More Referrals 46% 31% 27% Higher Average Assets 65% 43% More Profitable 30% 14% Value Advisor/Services 83% 64% More Assets 67% 43% 45% Consolidate Assets 77% 67% Minimally Engaged Easier to Retain 46% 28% Transitional 0% 20% 40% 60% 80% 100% Fully Engaged Minimally Engaged Fully Engaged Percentage of clients near or in retirementSource: Trends in Advisor Delivery of Retirement Income - 2012 6
    • Success Factors Relationship focused – Commitment - taking a long-term rather serving retirement than transactional income clients is a approach to support core component of their practice Customization – tailor support to specific client Well-Defined Processes – circumstances and needs and enabling them to efficiently follow a consistent methodology support a rising number of for engagement retirement income clients Educational – Planning orientation – informing clients on the issues providing a solid foundation and challenges they will face in and road map for support retirement Holistic perspective – going beyond investment management in the services they deliverSource: GDC Research and Practical Perspectives 7
    • Components of the Retirement Income Process Developing Retirement • Positioning with new & existing clients Income Clients • Communicating your process & services Retirement Visioning and • Obtain expressed and unexpressed Client Discovery needs/expectations Creating & Managing • Philosophical approach in creating income Retirement Income • Investing for longevity, inflation, health care, Plans/Portfolios etc. Monitoring, Review & • Ongoing support Adjustment • Monitor changes, especially the first 2 yearsSource: GDC Research and Practical Perspectives 8
    • Elements of Discovery• Help clients articulate Advisor Quote unexpressed concerns “Retirement distribution planning is clearly a process and one that requires the advisor to• Place issues in the right context be very skilled at putting issues in the right context. It is crucial to figure out what the• Identify needs vs. wants client needs and wants, otherwise the effort is meaningless. A major skill is getting people to• Create a vision and a plan for express their unexpressed expectations and living in retirement help them address issues that have not been well-thought-out. Dialogue and conversation• Include Spouse and family in the around what retirement looks like for the client discussion are crucial.” Source: GDC Research and Practical Perspectives 9
    • Expanding Services and Support Non-traditional services becoming a differentiator Nursing Home Selection Career Travel Counseling Services Tax Estate Mgmt. Planning Mortgages Personal Investment Development Planning Social CORE CORE Security Health Retirement Planning Care Insurance Relocation Risk Mgmt. Family Elder Care Counseling Funeral ArrangementsSource: GDC Research and Practical Perspectives 10
    • Working with Retirement Income Clients Statements Regarding Retirement Income Clients All of them Most of them Some of them A few of them You manage virtually all of their assets 12% 67% 18% 3% You have all of the resources you need 25% 53% 14%6% to service them You know what their monthly expenses 18% 51% 21% 9% are They have a comprehensive financial 17% 40% 27% 14% plan with you You have done a formal budget with 9% 29% 33% 20% them They need to take income out of their investments periodically to help pay for 7% 23% 51% 19% their living expenses They often have unexpected withdrawals that can undermine 12% 44% 42% income planning They have a high risk of running out of 6% 26% 64% money in retirementSource: The Current State of Retirement Income Sales Support -Practical Perspectives, GDC Research, andMathew Greenwald & Associates, Inc. 11
    • Tools and Software Used in Retirement Income Rely on strongly Use often, but do not rely on strongly Use occasionally Financial planning software 40% 25% 24% Questionnaires 29% 34% 25% Non-formal tools (e.g., "yellow pad" of paper) 26% 28% 34% Monte Carlo or other projection analysis 24% 31% 27% Worksheets 22% 32% 37% Frameworks or software that analyze a retirement income clients needs and recommend appropriate 18% 26% 32% products to meet those needs Client marketing and sales materials 5% 33% 43%Source: The Current State of Retirement Income Sales Support -Practical Perspectives, GDC Research, andMathew Greenwald & Associates, Inc. 12
    • What Retirement Income Philosophies Are Being Employed • Income Floor is growing while fewer advisors using Risk-adjusted Total Return method 35% 34% Risk-Adjusted Total Return Pooled Income Floor 31%Source: Trends in Advisor Delivery of Retirement Income - 2012 13
    • Retirement Income Philosophies Total Return Philosophy Pooled Philosophy Income Floor Philosophy • Emphasis on diversification and • Emphasis on establishing different • Emphasis on satisfying the performance similar to how assets pools of assets each with a minimum income needs of the assets are managed for pre-retirees different objective, time horizon or client through a low-risk strategy, although generally with a more - duration, and risk/return profile while managing the remainder of conservative, risk aware approach the portfolio to satisfy client “wants” • Generally invest in different pools or discretionary requirements • Assets draw down as a percentage or buckets with progressive five depending on portfolio returns of the portfolio that reflects client year durations and increasingly needs and circumstances, aggressive risk/return parameters • Generally carve out a specific generally between 3% and 5% portion of the portfolio to deliver • Specific short-term pools consistent income to satisfy client • Portfolio not generally managed established to generate income cash flow needs no matter how with income as a specific irrespective of current market the capital markets perform investment objective environment • Remainder of portfolio is invested • May create short-term reserve • Longer-term pools – those with a in a broadly diversified portfolio account to manage cash flow horizon of ten years or more – designed for total return within the needs Invested to sustain portfolio risk parameters of the client, with purchasing power over time • Typically invest in a mix of mutual excess returns beyond agreed funds, ETFs, individual securities, upon targets harvested to meet cash equivalents and separate • Typically invest in a mix of mutual discretionary spending desires accounts, with annuities used more funds, ETFs, individual securities, • Typically invest in a mix of mutual selectively cash equivalents and separate funds, ETFs, individual securities, accounts, with annuities and other cash equivalents and separate guaranteed income vehicles often accounts, with annuities and other used as core portfolio components guaranteed income vehicles used as core components for the income floor portion of the portfolioSource: Trends in Advisor Delivery of Retirement Income - 2012 14
    • Product Integration Mix Portfolios tend to include a mix of different solutions, with multiple vehicles used Percent allocated to vehicle for typical retirement income client VA 12% 45% 33% 10% SPIA/Income Annuity 47% 45% 6%2% Actively Managed Funds 5% 21% 38% 37% Index Funds 48% 35% 12% 5% ETFs 21% 47% 23% 16% Individual Securities 19% 43% 23% 16% SMAs 41% 32% 18% 8% Cash/Money Market 11% 63% 11% 15% Alternatives 22% 59% 14% 6% Structured Products 58% 31% 8% 2% Closed-End Funds 40% 42% 13% 5% 0% 20% 40% 60% 80% 100% None Low Medium HeavySource: Trends in Advisor Delivery of Retirement Income - 2012 15
    • Expected Change in Vehicles Used Expectation of continued shift to VAs, ETFs and actively managed funds during the coming 12 to 24 months VA 42% 11% SPIA/Income Annuity 25% 21% Actively Managed Funds 34% 11% Index Funds 13% 28% ETFs 28% 17% Individual Securities 31% 20% SMAs 21% 26% Cash/Money Market 19% 21% Alternatives 29% 18% Structured Products 18% 32% Closed-End Funds 20% 26% 0% 10% 20% 30% 40% 50% 60% Increase DecreaseSource: Trends in Advisor Delivery of Retirement Income - 2012 16
    • Impact of Challenging Environment Impact of Low Interest Rate Environment Impact of Market Volatility/Risk 2% 2% 13% 19% 23% 40% 45% 56% Significant Moderate Significant Moderate Minimal No Minimal NoSource: Trends in Advisor Delivery of Retirement Income - 2012 17
    • Top 5 Actions Taken Low Interest Rates Market Volatility 1 Increased Dividend Paying Equities Increased Dividend Paying Equities 2 Increased Guaranteed Solutions Increased Guaranteed Solutions 3 Increased Higher Yield Increased Alternatives 4 Increased Alternatives Increased Higher Yield Increased Non-Traditional Income 5 Solutions Increased Cash AllocationSource: Trends in Advisor Delivery of Retirement Income - 2012 18
    • Top Concerns in Serving Retirement Income Clients Preventing Client Overspending 56% 30% 14% Finding Investment Products 57% 25% 17% Asset Allocation 52% 31% 18% Educating Clients on Realities 59% 28% 12% Managing Client Fears/Expectations 68% 20% 12% Managing Risk/Volatility 67% 22% 10% Generating Short-term Income 53% 30% 17% Generating Long-term Income 69% 21% 9% 0% 20% 40% 60% 80% 100% Concerned Neither UnconcernedSource: Trends in Advisor Delivery of Retirement Income - 2012 19
    • Practice Management Challenges in Serving Retirement Income ClientsSource: Trends in Advisor Delivery of Retirement Income - 2012 20
    • Interest in New Approaches Advisors are open to new ideas including products and services 4% 2% 19% Strongly Agree 40% Somewhat Agree Somewhat Neither Somewhat Disagree Strongly Disagree 35%Source: Trends in Advisor Delivery of Retirement Income - 2012 21
    • But Support Providers Don’t Get High Marks Advisors Ratings of Retirement Income Support Excellent Very Good Fair 1 38% 50% 10% Wholesalers Knowledge of their own products or solutions 2 30% 42% 22% Broker-dealers/custodians 3 4 18% 43% 32% Knowledge of retirement Wholesalers income planning issues 5 19% 41% 28% and strategies Broker- dealers/custodians 6 7 15% 44% 34% Wholesalers Knowledge of competitor products or solutions 8 18% 30% 37% Broke- dealers/custodians 9 10 11% 38% 43% Understanding of your Wholesalers practice and your retirement income 11 13% 39% 34% Broker-dealers/custodians approachSource: The Current State of Retirement Income Sales Support -Practical Perspectives, GDC Research, andMathew Greenwald & Associates, Inc. 22
    • And There Is Room For Improvement Advisor ratings of support capabilities Excellent Very Good Fair Providing marketing or 1 Wholesalers 20% 45% 29% sales ideas 2 Broker dealers/custodians 18% 41% 31% 3 Providing training or Wholesalers 4 10% 34% 42% certification Broker dealers/custodians 5 18% 34% 36% 6 Wholesalers How to build and manage 7 12% 32% 47% more effective retirement income portfolios 8 Broker dealers/custodians 16% 34% 36% 9 10 Wholesalers 7% 34% 47% Practice management assistance 11 Broker dealers/custodians 20% 35% 32% 12 Helping you build a 13 Wholesalers 8% 26% 51% retirement income practice 14 Broker dealers/custodians 16% 31% 40%Source: The Current State of Retirement Income Sales Support -Practical Perspectives, GDC Research, andMathew Greenwald & Associates, Inc. 23
    • Advisors Need Balance Capacity and Compensation • Retirement income support takes more time, especially client service and support • Advisors are providing more advice, but advice based compensation is underutilized Time Spent on Key Functions Use of Alternative FeesClient Service 29% 62%Investment Research/Portfolio Creation 14% Planning 23% 15%Prospecting/Marketing 13%Rebalancing/Portfolio Oversight 12% 80% Hourly 17%Financial Planning 11% 3%Compliance 6% 82% Retainer 11%Estate Planning/Insurance/Non-Investment 6% 7%Budgeting/Income Management 4% 0% 20% 40% 60% 80% 100%Staff Management 4%Other 2% Frequently Occassionally Infrequently/Never 24 Source: Trends in Advisor Delivery of Retirement Income - 2012
    • Contact InformationDennis Gallant, President Howard SchneiderGDC Research Practical Perspectives(781) 314-0606 office (978) 590-7290(508) 397-9296 mobile howard.schneider@practicalperspectives.comgallant@gdcresearch.com www.practicalperspectives.comwww.gdcresearch.com Retirement Income Research • Advisor Best Practices in Delivering Retirement Income & Transition Support (Q3 2008) • Examining Best Practices in Constructing Retirement Income Portfolios (Q2 2009) • Update: Advisor Best Practices in Retirement Income (Q4 2009) • The Continued Evolution of Retirement Income Delivery: An Analysis of Leading Practices in Advisor Support (Q2 2010) • Trends in Retirement Income Delivery: Advisor Portfolio Construction, Product Usage, and Sales Support (Q2 2011) • Trends in Advisor Delivery of Retirement Income (Q1 2012) • The Current State of Retirement Income Sales Support (Q2 2012) 25