Fidelity sees potential 401(k) rollover magnet for RIAs: retirement income plans

Advisors are eyeing clients’ hefty 401(k) assets but aren’t providing the written retirement income plans that win praise from many retirees, a new study shows.

The study announced today by Boston-based Fidelity Investments shows that just 18% of pre-retirees who work with advisors have retirement income plans – a real disconnect from their expectations.

A full 81% of retirees surveyed feel a detailed retirement income plan is important. Out of the 18% who have retirement income plans, 53% consider them considered detailed plans.

Missing out

But advisors do not seem eager to memorialize their strategies in a written plan.

“Our survey found that advisors face a range of challenges that can make writing a retirement income plan feel extremely complex – and for that reason, many are opting for more informal planning processes,” says Larry Sinsimer, senior vice president of practice management for Fidelity Investments Institutional Services, in a statement. “Yet, investors are telling us that those advisors who can help them address the complexities of retirement planning – in writing – will secure their loyalty, referrals and business.”

It’s no surprise that advisors who provide comprehensive retirement income plans in turn have more satisfied clients who are more likely to pass on referrals that will lead to additional business.

The study shows that 63% of pre-retirees who had written, detailed retirement income plans said they were “very satisfied” with their advisors and that percentage grew to 69% for retirees. In fact, those “very satisfied” pre-retirees consolidated 72% of their savings and investments with their primary advisors and “very satisfied” retirees consolidated 81% of their assets.

Meanwhile, 79% of pre-retirees and 83% of retirees who were “very satisfied” with their advisor’s retirement income plans have referred business to their advisors.

Fidelity’s study, dubbed “Fidelity Retirement Redefined,” canvassed more than 500 financial advisors and 500 pre-retirees and retirees who work with financial advisors.

Beyond retirement

Lou Harvey, president and founder of Boston-based Dalbar Inc., thinks the notion of written plans as the silver bullet of client satisfaction is bit of a stretch.

Lou Harvey: Focusing solely on retirement
may disenfranchise some portion of the
retired and pre-retired investors.

While Harvey doesn’t dispute the importance of such plans, he believes that client satisfaction may hinge largely on the advisor’s overall game plan.

“It is far more likely that the process used to understand the investors led to the higher satisfaction” Harvey says in an e-mail. “Focusing solely on retirement may disenfranchise some portion of the retired and pre-retired investors. It should be clear that the needs and interest of retirees and pre-retirees extend beyond retirement.”

Disciplined process

Sinsimer believes the most important finding in this study is importance of using a disciplined process to understand investors’ needs and to apply that process to create a solution for investors.

“Advisors today should be focused on how they are going to leverage written income plans to become their client’s primary, most trusted advisor prior to and throughout retirement,” he says in the statement.

Sinsimer added in the release that Fidelity intends to pass on its findings and best practices through a new practice management insight series involving in-person workshops and webinars.

Traditional models

Despite the nature of the challenges advisors face, most are relying on traditional financial models to aid them in their retirement income planning discussions with clients. According to the survey, 88% use probability models and 76% use a combination of graphs and charts with historical trends.

While 76% of investors rate probability models as effective, many advisors note that they now are finding themselves in more of a “life coach” situation in which models don’t enhance planning discussions. Advisors reported that conversation techniques, such as storytelling and re-framing the discussion can be extremely effective.

Yet in a world of advisors vying for rollover assets, it makes sense to address these assets in a more direct manner, according to 401khelpcenter founder Rick Meigs.

“Capturing and retaining rollover assets has always been a challenge for these advisors and they are always looking for new ideas on how to do so,” he says in an e-mail. “If someone like Fidelity can help advisors make the case for such plans and provide tools, support and knowledge on how to write and maintain them, financial advisors could have another important tool.”

Stephanie Bogan: Clients appreciate formalized plans.
What they don’t value is reams
of paper they don’t understand.

Problems with complex plans

The analysis shows reasons advisors cite for not crafting written detailed retirement income plans. One of the biggest is that they have problems getting clients to focus on the future. Also, in today’s economic situation plans can become obsolete quickly because clients’ finances are constantly changing.

There are also a number of other obstacles that make it difficult for advisors to craft retirement income plans. For instance, spouses often may have different goals and objectives.

Many clients don’t have any retirement goals in place and as a result it’s impossible to budget for unplanned activities. Clients also are often reluctant to tap into assets such as inheritances.

These issues highlight the changing face of retirees. Modern retirees – like baby boomers – according to the study, are more responsible for funding their retirement with a defined contribution plan, such as a 401(k).

This group may also be characterized as having children later in life and carrying a mortgage into retirement. See: RIAs grapple with a rising threat to retirement: Adult kids that move back in with mom and dad

Simplify

Advisors may be reluctant to write written plans because they fear clients may be overwhelmed, says Stephanie Bogan, president of Quantuvis Consulting.

She says the secret to these documents is they provide something concrete for clients to have confidence about their future retirement plans.

“I think the reality is that clients appreciate formalized plans. What they don’t value is reams of paper they don’t understand. It seems few advisory firms have mastered the art of keeping it simple when it comes to planning documentation, so the default has become not to provide them.”