Client Emotions Can Inform Advice Approach

Advisers can help their more affluent clients better achieve their retirement goals by applying findings of a new LIMRA study, that organization says.

According to LIMRA Retirement Institute research, pre-retirees and retirees fall into one of three categories based on their emotional attitude toward their savings. By understanding these “money mindsets,” advisers can recommend the portfolio solutions most appropriate for each client, the institute says.

LIMRA’s research group quizzed 2,000 pre-retirees and retirees, aged 50 through 75, who own a minimum $100,000 in household assets, to learn what income product features they value most. Cluster analysis of their answers revealed the three different mindsets but also underscored the importance of looking beyond the common demographic profile, wealth level and lifestyle goals that make these clients appear alike. A client’s attitudes are the best predictor of his portfolio solution preference, the study said.

First, LIMRA identifies a class of “guarantee seekers,” who want peace of mind that their income will last. Having a floor of lifetime income, they would convert even more of their savings into a pension-like contractual guarantee and prefer that their income remain stable and predictable over pursuing its maximum growth potential. This group is least likely to own individual stocks, mutual funds or corporate municipal bonds and most likely to own deferred and immediate annuities, the research finds. 

Next are the “estate planners,” a more financially savvy group that wants to maximize their investments, even if that means weathering some volatility. They want control to make decisions and adjust their income and spending as life conditions change. They are most likely to hold individual stocks, mutual funds and exchange-traded funds (ETFs), LIMRA finds. 

Last, LIMRA identifies the “asset protectors,” often long-time savers, who fear running out of money in retirement and will live off their dividends and interest from savings but not touch their principal. They want to hedge against unexpected future expenses, and invest the most conservatively of the groups, often through annuities and government bonds/Treasury notes.

“The most effective retirement income strategy is actually a subjective assessment as much as it is an objective one,” says Judith Zaiken, corporate vice president and director for LIMRA Secure Retirement Institute research. “A subjective assessment combined with a thorough look at the numbers can help an adviser develop a more effective retirement income strategy.”

The Money Mindset quiz can be found here, LIMRA notes, and can help advisers better understand a given client or group of clients.