Retirees consolidating assets with a single advisor

Financial service institutions and advisors are sitting on a multi-trillion dollar opportunity to gain assets and grow their business, according to a recent study on the financial services industry by the TowerGroup.

By providing efficient and effective retirement income planning services for the growing percentage of the population in or near retirement, the research firm predicts that the challenges inherent in retirement income planning and asset “decumulation” will soon prompt many households to consolidate assets with a single advisor.

But the report also sounds a note of caution: the demographic shift could be a double-edged sword for advisors. Gaining increased business is not a given; rather, “the opportunity for financial services institutions to gain or lose assets is significant,” notes the report.

Although the TowerGroup study focused on American households, the findings can be applied to Canada. Echoing the findings, Moshe Milevsky, the executive director of the IFID Centre and an associate professor of finance at the Schulich School of Business at York University in Toronto, said in a recent speech that there are distinct differences between servicing wealth accumulators who are striving to reach their financial goals and retirees drawing on their wealth to pay for their retirement.

It’s a change in mindset, he says. In retirement, building the portfolio becomes less important than making sure the money will last the rest of the client’s life. In other words, advisors shouldn’t be trying to shoot the lights out if it increases the risk for their retiree clients.

Another important point Milevsky makes is that clients at the later stages in their lives are typically not shopping around for advice from a variety of sources, they are merging their assets. “When people transition into income, they tend to go from three or four advisors to one advisor,” he says.

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• TEMPLATE LETTER: Initiating a trust discussion • TALKING POINTS: Risk and Asset Allocation

Milevsky continues, that when investors are accumulating wealth, it doesn’t matter as much if one advisor helps with one issue and the other helps with another. That’s not the case in retirement, however. In retirement, advisors have to help their clients with a range of issues, from determining which investments would provide the most tax-efficient return to how to best manage risk.

“Once I start transitioning into income, once I have my silos filled up and it’s time to start withdrawing gain from them, I’ve got to manage them together,” he says. “The key message here is that as [clients] transition into income, you want to be the one that they are talking to, not the two or three that they dropped.”

TowerGroup’s research offers some insights into the needs of individual retiree investors, ranging from the mass market up to the high-net-worth segment (click here for a concise summary).

The mass market will be most concerned with asset protection by shifting assets into investments that offers a manageable risk to the principal. The affluent market will be most interested in structured assets drawdown strategies that are balanced with a risk management program. Finally, the high-net worth clients will try to blend lifestyle and legacy.

The study asserts that “competitive advantage will flow to financial services institutions that can manage clients’ finances and expectations as they move from mass market to affluent to the high-net-worth financial segment during their working years — and then back down to mass market as the retirement years progress and their nest eggs get depleted.”

TowerGroup continues: “In the battle for consolidation of household assets, the winning formula will be independent and objective advice offered by distributors such as smaller registered investment advisors, as well as banks and brokerage firms that provide advice unencumbered by proprietary product sets.”

Asset Drawdown Strategies
Wealth Tier Investible Assets (USD)	Retirement Income Focus	Strategies	Product & Services
Mass market $0 to $200,000 90 million households	• Protecting assets	• Home equity release • Income generation • Canned plant	• Reverse mortgage • Income-oriented mutual fund • Annuities
Affluent $200,000 to $2.5 million 15 million households	• Maximizing sustainable income	• Drawdown for cash flow • Insurance against risks through product	• Preconfigured managed money • Mutual funds systematic withdrawal plan • Annuities, long term care
High net worth $2.5 million + 1.4 million households	• Blending lifestyle and legacy	• Drawdown for cash flow legacy • Self-insurance • Estate tax	• Managed money • Structured products • Trusts

Source: Adapted from TowerGroup 2006

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(10/30/06)

Mark Brown