Communicating clearly and effectively with clients has always been a critical part of a financial advisor's role. With the Department of Labor's new fiduciary rule, advisors have even more reason to discuss the full range of retirement income options with their clients.
The rule, which will begin to take effect in April 2017 barring any changes by the next president, requires advisors to act in the best interests of their clients and to disclose any potential conflicts of interest. For investors, the rule makes investment choices more transparent and helps avoid unnecessary fees. For advisors, it offers an opportunity to have better, more holistic conversations that incorporate each client's goals, health and emotional well-being. Ultimately, these conversations allow advisors to create retirement plans that support clients' best interests and inspire their loyalty.
Start by talking with your clients about the following essential aspects of any retirement plan:
Almost 80% of Americans would feel better about retirement if they had a source of protected lifetime income, according to the 2016 Empower Retirement Lifetime Income Score. Many people use a protected income stream to cover basic living expenses, including housing, groceries, transportation, healthcare and utilities.
To help your clients determine if they have enough protected income, work with them to draw up a budget, keeping in mind that their expenses may shift over the course of their retirement. Then determine whether guaranteed sources of income like pensions and Social Security will be enough to cover their basic expenses. If they’re not, talk to your clients about purchasing a variable annuity with a guaranteed pay-out.
As your clients approach retirement, they may grow concerned that a sudden downturn in the market could throw a wrench in their plans. Such fears are natural, but the bigger risk is that they'll have to a pay for a longer retirement than they anticipated. Life expectancy is on the rise, and there is a one-in-four chance that one partner in a 65-year-old couple will live to age 98. Continuing to invest in stocks can help your clients stay ahead of inflation and maintain sufficient income for their entire lives.
Your clients’ biggest fear is likely the unknown—from how long they will live to what their health care costs may be. There may be unexpected opportunities along the way too, such as travel or funding a loved one's education. Check in with your clients regularly about how their plan is working for them, and make adjustments as you—and they—go along.
The DOL fiduciary rule provides an opportunity to strengthen relationships with your clients, and to gain a deeper understanding of their unique situations. By having frequent conversations that cover their physical, emotional and financial needs, you'll make sure that you continue to act in your clients' best interests—and strengthen your own practice as a result.
2 Society of Actuaries, 2016