A Seamless Advisory Experience

The typical investor has five to six accounts, multiple products and custodians, and two or three advisers managing their assets.

An extensive new white paper published in collaboration by the Insured Retirement Institute (IRI) and Allianz Life Financial Services offers advisers a fresh take on the evolving competitive and client service landscape they face.

The paper’s authors include Jack Sharry, executive vice president and chief marketing officer of LifeYield; Wayne Chopus, president and CEO of the IRI; and Corey Walther, president, Allianz Life Financial Services. Looking back at the way advisers’ practices have evolved over the years, the trio suggests there has been a lot of value delivered to clients. But at the same time, clear issues remain, and the retirement specialist advisory industry must evolve to remain relevant.

“By diversifying in an ad hoc way, sometimes based upon buying what recently worked and selling what didn’t, investors may have found themselves unintentionally doing three things,” the paper suggests. First, over the years, investors have underperformed the markets. Second, they have taken on unintended risk, and finally, they have paid unnecessary taxes.

The report indicates investors tend to chase performance, and as a result, fall short of their objectives.

“In a quest for diversification, investor households may have also opened multiple taxable and tax-advantaged accounts over time, with products often purchased from different advisers with virtually no coordination,” the paper warns. “This can result in them having a risk profile that could be inconsistent with their objectives and may also lead to them paying unnecessary taxes.”

According to Chopus, Sharry and Walther, wealth advisers realize clients expect more than just strong investment performance, but they struggle to communicate the value of their offerings and services.

“The answer is not simply lowering fees, but rather a combination of increasing transparency and predictability when it comes to pricing models, and equipping advisers with ways to communicate value beyond investment returns,” the paper suggests. “Industry leaders are working on communicating value, aggregating data, and combining capabilities to create better outcomes from a cost, risk and tax standpoint.”

The paper here cites data from Morningstar to show that an optimal asset location/organization strategy—using “a risk-smart, tax-smart strategy,” from accumulation through withdrawals—can add 1.83% per year in incremental after-tax returns and income. Using a $1 million portfolio as an example, optimized strategies resulted in an additional $156,000 for the client over 10 years.

Given the roles of the IRI and Allianz in advocating for greater use of annuities and guaranteed lifetime income products, it’s no surprise the paper suggests clients and advisers are recognizing the need to create a comprehensive household-level plan with a holistic approach to addressing risks.

“Given the complexity of managing at the household level, advisers are moving to a wealth management approach that leverages the modern design of investment and insurance solutions, at both the product and platform levels,” the paper suggests. “Combining the adviser’s knowledge with the institutional scale and the risk management acumen of an insurance company, this modern approach facilitates deeper client relationships, helps differentiate advisers from commoditized investment planning, and can add more consistent revenue.”

According to the white paper, demand for insured-based solutions has grown as more traditional sources of protection and lifetime income (such as pension plans) have disappeared, and more and more people are nearing or entering retirement.

“Product design options have greatly improved—including fee-based product options, lower cost structures, flexible designs, and modern withdrawal benefits,” the paper says. “These advancements have become integral to addressing risks costs, and taxes within a retirement planning ecosystem. Annuities need no longer be viewed as an independent transaction; they can now be managed, billed, and reported together with other assets in the portfolio to facilitate a goals-based, relationship-driven practice model.”

The paper points out that recent developments in the income insurance space are generally unknown, or little understood, to a large segment of financial advisers.

“The future of advice lies in creating value by leveraging people and technology to coordinate and optimize the products, accounts, and holdings that make up a household portfolio—to deal with critical life moments and the evolving complexity of a client’s financial life—for the end objective of improving outcomes,” the paper continues. “Wealth managers, annuity companies, asset managers, retirement plan sponsors, and technology providers are working together to drive the evolution of both approaches for comprehensive solutions.”

As Sharry, Chopus and Walther explain, platform solutions already available today are designed to help advisers optimize, aggregate, and quantify the financial benefit of managing multiple household accounts and products in a risk-smart and tax-smart way.

“This approach requires operational infrastructure that connects and integrates multiple capabilities to help advisers help investors improve outcomes,” the paper says.

Complementing the platform solutions, technology-enabled client solutions are emerging that combine a simplified planning approach with shared control of investment decisions and optimized products and accounts. Using easy-to-understand software tools, advisers can customize a potential solution for investors to chart their course toward improved outcomes, the paper says.

Sharry, Chopus and Walther conclude their paper with some key recommendations advisers should consider in their efforts to build more seamless client experiences.

“Evolve your practice with a focus on goals-based, household-level solutions,” the paper suggests. “Help facilitate greater confidence through holistic wealth management that may deepen client relationships and set you apart from commoditized alternatives. Leverage institutional scale to integrate risk management capabilities in your practice. Yes, you can manage some risk on your own, but outsourcing to gain scale and efficiencies will allow you to focus on other components of the portfolio. Take another look at modern insurance products available on the market today. Annuities have come a long way with fee-based designs, competitive costs structures, greater flexibility, contemporary withdrawal benefits, and income guarantees that may allow for greater risk tolerance in other parts of the client’s portfolio.”