In Practice February 19, 2007

Tackling the Retirement Income Arena Requires New Processes

Financial services forget that people planning for retirement income need to balance the risk of living long with the possibility that they won’t, according to Robert Del Col, President of FundQuest.
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Speaking at the Managing Retirement Income conference in Boston last week, Del Col said that the best way to address the needs of Baby Boomers in retirement is for financial services firms to develop a process based solution in three steps: plan, implement, and monitor. A process should integrate tools, products and services, he said, because that creates a relationship.
Baby Boomers do not need to be educated on principal risk, but do need some help understanding inflation, withdrawal strategies and longevity risk, said William Lowe, the Head of Financial Solutions Group for ING Financial Advisors.
Product Differentiation
The current offerings of products can fit into four categories, Lowe said: asset allocation products, investment solutions, guaranteed solutions, or hybrid solutions.
Daniel Rosshirt, Senior Manager at Deloitte Consulting LLP, said managing retirement income offers a significant opportunity for financial services firms. Although the firms are aggressively preparing for and pursuing the Boomer opportunity, there isn’t much differentiation between products currently. This is an issue, Rosshirt said, because that intense competition leads only to one outcome: consolidation.
Rosshirt said he sees three areas which need to be addressed to achieve product differentiation. First, market segmentation; to succeed, Rosshirt said a distributor needs to understand what market is being targeted. The need is in the mass affluent market, Rosshirt said, a demographic which will be challenging to address, but has potential. When segmenting the marketplace to determine a target demographic, the market has traditionally been defined by assets. However, Rosshirt said, wealth is not a good predictor of buying behavior. Rather, comfort-level with the product is a better predictor of client needs.
Further, “trust is a key driver of success in this marketplace,” Rosshirt said. Therefore, in order to have successful products, the providers must provide more valuable information on retirement options and help Baby Boomers understand what they should choose. This is where a valuable financial adviser can come in, because those who currently serve the retirement income market tend to do so because clients come to them, they don’t go out looking to serve it, Rosshirt said. This can change by financial advisers becoming more comfortable with the products available and the needs those products serve.
Lastly, Rosshirt said, providers will have to learn how to deliver these types of solutions economically.
Lowe predicted that three trends which will continue to grow are life planning, or how a person envisions retirement, full service accounts, such as Fidelity’s Retirement Income Advantage, and guarantees in defined contribution plans, perhaps coming about as part of a marriage between managed accounts and guarantees.
The Markets February 19, 2007

Ameriprise Introduces Risk-Managed Portfolio Series

Ameriprise Financial, Inc. has launched two new series of actively managed account portfolios.
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The Active Accumulation Portfolios, which are reallocated on a monthly basis, seek to provide risk-managed growth and inflation-adjusted income in the Active Income Portfolios. According to a company statement, the mutual fund portfolios – Active Accumulation Portfolios and Active Income Portfolios – are available through the Ameriprise Premier Portfolio Services investment advisory program, offer a turnkey investment solution for financial advisers, allowing them to spend more time with their clients.

Although only two series of portfolios will be launched this year, managed by RiverSource Investments, LLC, Ameriprise said it plans to add more Active Portfolios in 2008. The mutual fund portfolios, available through financial advisers, are offered through Ameriprise Financial Services, Inc., a subsidiary of Ameriprise Financial.

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