In Practice April 9, 2018

Peers Play a Big Role in Adviser Relocations, Independence Decisions

Almost half of advisers who left their firm moved along with a larger team in 2017, versus 34% in 2012, according to data shared by Fidelity Clearing and Custody Solutions; advisers moving to an independent broker/dealer more often depart as a team versus other movers.

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Fidelity Clearing and Custody Solutions, the division of Fidelity Investments that provides clearing and custody support to registered investment advisers (RIAs), brokers/dealers, recordkeepers and other entities, has released its latest Advisor Movement Study.

The research explores established and emerging trends in the ways advisers choose to change firms and business models—or stay put. Perhaps most important, the analysis also explores the “feelings of advisers who have switched or are currently switching firms,” whom Fidelity identifies as “movers.”

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According to Fidelity researchers, more than half (56%) of advisers considered switching firms in the past five years, and nearly one in four (23%) actually made a move in that time. Notably, nearly all of those who switched (92%) say they are happy with their decisions to do so.

The analysis mirrors other recent research that shows movement to independent channels is increasing. Fidelity’s data shows RIAs and independent broker/dealers are the top destinations for movers, with 64% choosing one of these channels. This figure is up strongly from the 50% of movers measured in Fidelity’s 2015 Advisor Movement research. The study also shows that movers are now transferring more assets when they jump to a new firm, today shifting $75 million in median assets versus $37.5 million in a 2012 edition of the analysis.  

“Advisers are increasingly looking for the freedom to realize their unique visions for their businesses, and the opportunity to offer clients a higher level of customized service and advice,” explains Tricia Haskins, vice president, practice management and consulting, Fidelity Clearing & Custody Solutions. “They believe this will result in greater opportunities for growth and contribute to continued success in the future.”

Overall, movers say it is their peers who are the most influential people in their decisions to switch firms. The peer category includes advisers on their current team, former colleagues who moved or even advisers who work for the new firm. Importantly, the influence of peers is seemingly growing from an already high level, as 63% of movers identified these groups as influential to their decision in 2017, versus 50% in 2012.

“What’s more, movement as a team increased,” Haskins reports. “Almost half of movers (47%) moved along with a team in 2017, versus 34% in 2012. Advisers moving to an independent broker/dealer more often depart as a team versus other movers.”

“Articulating how a firm will support adviser teams during a move is an important piece of the recruitment strategy,” adds Charlie Phelan, vice president, practice management and consulting, Fidelity Clearing and Custody Solutions. “Fear of the unknown tends to be a significant concern when advisers are thinking about moving, so explaining how firms help support advisers during and after the transition is a critically important aspect of the recruiting process.”

Another interesting factoid in the research involved the impact of the Department of Labor (DOL) fiduciary rulemaking. While recent circuit court decisions have cast the long-term future of the rule into some doubt, Fidelity’s data shows a lot of advisers who have shifted business models or jumped from one firm to another cite the DOL rulemaking as a top point of influence.

“Regulatory uncertainty due to the Department of Labor’s investment advice rule was on advisers’ minds when surveyed,” Fidelity reports. “Nearly a quarter of movers mentioned it when describing the market landscape when they considered switching, as did 47% of advisors who had seriously considered or are still considering a move.”

These figures will bear watching as the ultimate future of the fiduciary rule comes into better focus.

Data & Research April 9, 2018

Baby Boomers Not Doing Enough to Prepare for Retirement

Many Baby Boomers have not saved enough, a survey found, and many are also not thinking of important elements of a plan for retirement.

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Baby Boomers are in large measure unprepared for retirement, having failed both to plan adequately and save enough, according to a study released by the Insured Retirement Institute (IRI), in conjunction with National Retirement Planning Week.

According to the study, 42% of Baby Boomers have no retirement savings. Among Boomers who do have retirement savings, 38% have less than $100,000 saved for retirement. Further, only 38% have calculated the amount they will need to retire. However, 79% of boomers who work with financial professionals have at least $100,000 saved for retirement.

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During a media call, Tim Seifert, vice president and head of Annuity Sales at Lincoln Financial Group, said clients come in with two questions: “Do I have enough saved, and will it last for my lifetime?” This is a universal problem, he says, whether the client is a factory worker or factory owner, and the challenge Americans will continue to face is how to know if they are prepared to be financially secure in retirement.

The number one rule is to understand longevity—what Seifert calls the 73/47 rule. For a husband and wife age 65 today, there is a 73% chance that one will be alive at age 90 and a 47% chance one will be alive at age 95. “Savings needs to last 30 to 35 years, and only 18% can depend on pensions,” Seifert said. “A good retirement plan will always include a strong income strategy.”

The IRI study found 46% of Baby Boomers expect they will need $45,000 (in current dollars) or more in annual retirement income. Assuming the current average Social Security benefit of $16,848, an individual would need to generate at least $28,152 in additional annual income from a combination of pension benefits and retirement savings. At current rates, a life annuity paying $28,152 in annual guaranteed lifetime income would cost approximately $430,000, far more than most Boomers have saved.

Seven in 10 Boomers say it is very important for retirement income to be guaranteed for life, yet only 14% plan to purchase an annuity with a portion of their 401(k) or IRA, and only 3% have done so. However, 84% of Boomers with financial advisers have had income from an annuity included in their financial plan by their adviser (43%), or their adviser has discussed using annuities for retirement income with them (41%).

Only 25% of boomers believe that they will have enough money in retirement, and only 28% believe they are doing (or did) a good job financially preparing for retirement. While a growing number (25%, up from 20% in 2017) plan to retire earlier than age 65, 29% expect to work past age 70.

Baby Boomers began reaching age 65 in 2011—26 million have so far and another 50 million will turn 65 over the next 10 years, Cathy Weatherford, president and CEO of the IRI, pointed out in the media call. “There is still some time, and with effort, we can help millions become better prepared for retirement.”

Changes to Social Security that may reduce their income (76%) and health care expenses (69%) are the top two concerns of Boomers regarding their later retirement years, according to the IRI study.

Bill Nash, VP, MoneyGuard Distribution, Lincoln Financial Group, said during the media call that it is impossible to have a retirement planning discussion without having a discussion about the effect of long-term care needs in retirement. Only 29% of survey respondents believe they will have enough for health care expenses in retirement, and only 19% believe they will have enough for long-term care expenses. Nash pointed out that the average cost of nursing home care is more than $100,000 a year, and for a home health care nurse, the average is $47,000 a year.

“Family and friends have the best intention to be caregivers, but many do not have financial or emotional resources,” Nash said. “Only 14% of clients are having a conversation with family, mostly due to a lack of education and awareness. People severely underestimate the cost and many feel they won’t need long-term care, and there is a lack of awareness about what Medicare or Medicaid will pay.”

Nash said the conversation can be started by asking, “What is your plan for long-term care,” “How will long-term care affect your family,” “How will the expense affect your family,” “What kind of care do you want,” and “If you were to need care and are unable to make decisions, other than your spouse, who would you want to make those decisions?”

Brandon Buckingham, vice president and national director of Advanced Planning at Prudential Financial, pointed out that more Americans today have to rely on personal savings for retirement income than in the past. “A retirement income plan is more than just taking out money from defined contribution plans as needed; it will likely require a combination of investments, strategies and products. It will involve making informed decisions such as when to take Social Security, understanding health care costs and what Medicare costs and covers, and knowing how to structure decumulation to address inflation risk, longevity risk and market risk.”

Weatherford noted that the theme of this year’s National Retirement Planning Week is “Rethink Retirement.” She said it is important for Americans to have a plan, save as much as they can and seek the help of retirement professionals to make sure they are using all possible resources to prepare for a comfortable retirement.

IRI’s survey report is here.

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