Data & Research June 15, 2012

Advisers Face Obstacles in Product Options and Client Expectations

 

Only half the clients of advisers surveyed have realistic expectations about the amount of income their investments will provide in retirement, Russell Investments found.

 

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In its quarterly Financial Performance Outlook survey, Russell Investments ventured into new areas. A number of results were about retirement income planning.

Advisers do not see their clients as focusing on the right retirement goals. They reported that only 54% of their clients have realistic expectations about the amount of income their investments will provide them in retirement.

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Nearly three-quarters (72% of the advisers surveyed said that retirement income planning is either a large or core part of their practice, with another 23% indicating it to be a small but regular component.

Many advisers are also dedicating time to learning more about retirement income planning and strategies—more than 98% of respondents said they are trying to build expertise in retirement income planning. However, advisers also indicated there is no consensus on the right resources to consult. Respondents reported they are turning to a variety of sources, including online material and books (68%), industry peers (52%), fund companies (49%) and accredited courses (45%).

Advisers reported that in order to help clients achieve retirement income goals, they often or always recommend a diversified portfolio of mutual funds (75%), dividend-paying equity funds (64%) or bond funds (51%). Immediate annuities and fixed annuities were among the least popular options, with 61% and 64% respectively saying they rarely or never recommend them for retirement income planning

 

Other key findings of the survey are:

  • Advisers are committed to learning more: Almost all (98%) are dedicating more time to increasing their knowledge of retirement income planning.
  • Running out of money is a common topic of conversation for both advisers and clients: 38% of advisers named it as a subject of conversation they initiate with clients, and 34% said that clients are bringing it up themselves
  • Retirement is a crucial part of the practice: Out of the advisers surveyed, 72% said that retirement income planning is a core or large part of their practice.
  • However, there seems to be no consensus on how to build expertise in retirement income planning:  Advisers are consulting many sources including online material and books (68%), industry peers (52%), fund companies (49%) and accredited courses (45%)
  • How are advisers constructing portfolios to meet retirement goals? 75% recommend diversified portfolio of mutual funds, 64% recommend dividend-paying equity funds and 51% recommend bond funds

The survey includes responses from more than 350 financial advisers working in 122 national, regional and independent advisory firms nationwide.

More about the Financial Professional Outlook survey is available here.

 

Data & Research June 15, 2012

401(k) Eligibility a Key Factor in Retirement Readiness

Being eligible to participate in a 401(k) is critical in closing the retirement savings gap for Generation X, according to the Employee Benefit Research Institute (EBRI).
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Generation Xers with at least 20 years of future eligibility are projected to have a much lower financial shortfall ($23,000 per individual) than those without any future years of eligibility ($78,000 per individual), according to EBRI’s latest Retirement Security Projection Model.

EBRI’s estimate includes nursing home and home health care expenses, which EBRI says leads to a more realistic projection.

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“Ignoring the impact of nursing home and home health care costs in retirement significantly overstates the likelihood of retirement income adequacy,” said Jack VanDerhei, EBRI’s research director.

When nursing home and home health care expenses are taken into consideration, 68% of single male Gen Xers look to have no financial shortfall in retirement. If these expenses are not factored in, a much larger percentage (90%) has what is actually a falsely optimistic picture of retirement adequacy.

Earlier EBRI research has found that about 44% of both Baby Boomer and Gen Xer households are likely to be at risk of running short of funds during retirement, assuming they retired at age 65 and retained any net housing equity in retirement until other financial resources were depleted. (See “More Workers Estimated To Be Retirement Ready.”)

The full report is available in the June issue of EBRI Notes. 

 

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