The good news is that retirees appear to be quite content with their existing adviser relationships – all the more reason for advisers to establish those connections prior to retirement, according to a new report.
“Financial advisers targeting retirees for new relationships face a nearly insurmountable challenge,” says “Converting Retirement Income Planning Into Practice: Fulfilling the Needs of Current and Future Retirees,” a survey conducted by the Financial Research Corporation and Synovate’s Financial Services Practice of 600 retiree households in which the couple or individual had been retired from a primary career for three years or more and had at least $100,000 of investable assets
The survey reported that almost 90% of retirees surveyed are either “very satisfied” or “somewhat satisfied” with their current adviser relationships. Further, retirees appear to be firmly entrenched in relationships with their primary financial advisers: 57% said their relationships have been in place for ten years or more, 22% indicated they have had relationships lasting five to ten years and only 11% were in relationships with their advisers for less than three years. Additionally, FRC reported that 25% of retirees had consolidated their investment accounts, effectively firing at least one provider. This resulted in those surveyed having an average of 1.2 adviser relationships per household, a number that increased with household wealth.
This is good news for Fidelity, Bank of America, Merrill Lynch, Vanguard, and Charles Schwab, who were the leaders in terms of total retiree relationships. However, when it comes to customer loyalty, retiree respondents ranked A.G. Edwards, Morgan Stanley, Wachovia, UBS, Smith Barney, Ameriprise, Edward Jones, Merrill Lynch, Fidelity and Schwab 1 – 10 in customer loyalty, respectively, demonstrating an affinity for full-service broker-dealers.
FRC reported that only one in five retirees considers a single firm to be their primary provider for both banking and investment services and of those who reported using a single firm, most used banks, followed closely by wirehouse broker-dealers. Despite the prevalence of advisers among this group, retirees are only generating about a third of their income from investments, the report said. As a result of the income levels of those in this survey (23% had between $250,000 and $500,000 and 31% reported wealth of between $1 million and $2 million), only one-quarter of their income was coming from Social Security, FRC reported.
A minority of retirees have created formal, written retirement income plans, but many have sought retirement income advice, often informally. Retirees are turning to their advisers most frequently for guidance choosing appropriate investments, while also asking for help with estate planning and taxes. Overall, 50% of retirees have sought some advice on retirement income planning. The most common action resulting from retirement income planning is to change the investment mix, cited by 50% of surveyed retirees.
Tasks of lesser importance include determining how to make withdrawals from multiple investments or determining the income that can be safely withdrawn, which FRC attributes to a lack of recognition of these things as needs in a retirement income strategy. A scant 6% of those surveyed asked their advisers for help in budgeting expenses and income; the report says that retirees generally have a clear picture of their expenses in three categories: necessities, luxuries and an in-between segment of “lifestyle enhancers.”