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Industry Divided on How to Manage Retirement Plans

Industry Divided on How to Manage Retirement Plans

Six in 10 U.S. financial advisors say the majority of their clients are either in or nearing retirement, according to Russell Investments' latest Financial Professional Outlook survey. And that number is bound to increase with the aging Baby Boomer generation, yet there isn’t a consensus about how advisors should create and manage a retirement plan.

According to Russell’s survey, advisors are divided when it comes to developing spending plans, allocating resources, and even how to measure whether a client is on track.

For example, 25 percent of advisors said they base a retirement spending plan on pre-retirement spending patterns, the most popular approach. Another 22 percent use simple rules of thumb like the “4 percent rule.” Nineteen percent use bucket strategies and 16 percent estimate spending by creating a ratio of assets to future liabilities.


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“A rule of thumb is easier, and there is momentum," said Rod Greenshields, the author of the study and consulting director for Russell’s U.S. advisor-sold business. "It’s the way it’s been done in the past."

The study also found that only 38 percent of advisors relied on a risk-profile questionnaire to determine how to allocate a client’s assets, while 26 percent rely on an asset-to-liability ratio. Fifteen percent prefer to invest a client’s money in equities early before shifting to more conservative asset classes, and just 8 percent approach asset allocation with balanced portfolios.


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“We believe a better way to approach the development of a retirement spending plan is to apply a little math and science in the form of the funded ratio,” Greenshields said in the study. “It takes into account an investor’s actual assets and needs, gives a true running tally of income and expenses, and can help avoid the rude awakenings that come with some other common planning methods.”

Other advisors feel that a ratio-based approach doesn’t take into account clients’ other retirement goals or one-time expenses like travel, new cars, new homes, a grandchild’s education or weddings.

“With these goals in mind, a reasonable expectation of these costs and reasonable inflation rate can help determine when a client can retire with a given rate of return,” said Daniel Lash, a partner at VLP Financial Advisors. “The return must be reasonable in nature and not above historical averages.”

While different advisors will of course have unique strategies, they can’t even agree on how to measure whether or not their clients are on track for retirement. The most popular methods were looking at preservation of capital after distributions (34 percent) and whether a portfolio maintained a projected rate of return (20 percent).


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Despite the different methods of evaluation, advisors do mostly agree that they are doing a good job, with 74 percent of respondents saying their clients are on track for a sustainable retirement.

Charles Sachs, a principal wealth advisor from Private Wealth Counsel, said that the disagreements in the survey had more to do with who responded.

“The survey interviewed ‘advisors,’ which I suspect included a lot of folks in our industry who are more sales people than financial planners,” Sachs said. “A group of certified financial planners would have rather different results in my opinion, as would those who are fiduciaries.”

“Running out of money later in life is not pretty and professionals relying on a rule of thumb is dangerous if not incompetent.”

Russell’s quarterly survey, which was fielded from Sept. 24 to Oct. 8, sampled 234 advisors from 145 investment firms around the U.S. The survey also looked at the type of conversations advisors are having with clients and found that market volatility was a chief concern of advisors in the third quarter. 

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