Skip navigation
Wild Cards, Would-Be Clients and a New Breed of Annuity

Wild Cards, Would-Be Clients and a New Breed of Annuity

A new WMIQ study on retirement planning, conducted in collaboration with annuity provider Midland Advisory, found more than 3/4 of potential clients feel it’s important for advisors to be fiduciaries and nearly 2/3 prioritize retirement expertise.

More than three-quarters of potential clients feel it is “very important or critical” for an advisor to be a “full-time fiduciary,” according to a new WMIQ study. And nearly two-thirds feel likewise about having retirement planning and income expertise, while around the same number would appreciate someone who is able to help identify risks and opportunities.

The Wild Cards of Retirement is the first investor-focused study RIA Edge and the research team have conducted. In collaboration with Midland Advisory, advised clients and “do-it-yourself” investors were surveyed to learn how they view retirement under the new macroeconomic paradigm—and expectations appear disconnected from realities.

Respondents also weighed in on how they perceive the value of financial advice.

Just under half of the investors in the study (47%) own assets in excess of $1 million, while a fifth have between $500,000 and $1 million and the remaining 33% have less than $500,000 in investable assets. Nearly three in ten don’t currently work with a financial advisor, and only about a quarter of those said they were interested in finding one—but a majority acknowledged they could benefit from doing so. The data was collected in late October.

Overall, the wealthy are pretty sure they will remain wealthy. Just over half are “extremely” or “very” confident that they will retire comfortably. That said, almost three-quarters are worried about the effects of inflation and eight in ten are concerned about rising health care costs. Those sentiments were only slightly less pronounced in investors with more than $1 million.

Further, 46% of all investors could imagine not being able to cover an emergency and 38% are unsure of their legacy.

Respondents without an advisor expressed more extreme concern than their peers, “to a significant degree.” Whereas 5% of advised investors said they’re “extremely concerned” about inflation, twice as many do-it-yourself investors admitted as much. Similarly, twice as many advisor-less respondents are extremely concerned about affording health care in retirement—14% versus 7%.

The research also found a significant disconnect between spending expectations and the post-retirement reality.

The typical survey respondent estimated they will spend around 58% of their current household income, at least during the first five years of retirement. The largest group—31%—said they will likely spend between half and 74% of their current income in retirement and more than a quarter—28%—expect to spend between 75% and 99%, while 14% estimated they would spend about the same as they are now. Just 2% anticipate increased expenses.

“I really have a hard time seeing how people can honestly think that they will be able to get by in this environment with that much of a cut in their spending,” said Cooper Sinclair, VP of advisory distribution for Midland.

It seems like there's a real issue with people taking to heart these retirement concerns,” he said. I don't see how they also can respond in the same survey that they're going to get by on a fraction, even a high fraction.”

Responses from retired investors paint a more realistic picture but still don’t fully factor in shifting inflationary expectations. While 31% said they are actually spending between 50% and 74% of their pre-retirement income, just one in ten are spending between 75% and 99% of what they spent before and more than a fifth are spending at about the same level. Seven percent are spending more.

“Clearly, spending more than planned, even if not by an enormous amount, is the experience of many people once they reach retirement,” wrote the report’s authors.

Sinclair said the disconnect represents an opportunity for advisors to demonstrate their value to existing and potential clients—both of which placed a premium on advisors with expertise in retirement planning and income strategies.

Among the 71% of respondents with advisors, four in ten don’t feel it’s important for their advisor to hold a Certified Financial Planner designation but 67% deemed fiduciary services to be very important or critical. More than half (54%) consider having retirement planning and income strategies at least very important. At the same time, having “clear and reasonable fees” is important to 78% of advisory clients.

While 38% of clients said it’s not important to be with a widely recognized firm, 56% think it is. They tend not to care about the gender of their advisor, but more than half (62%) expect that advisor to provide guidance on all assets, including those they don’t manage.

With around 69% of their assets under management, more than two-thirds of clients have been with their advisor for over a decade and only 17% have hired more than one.

Among the unadvised contingent, there was little interest in seeking out an advisor but 66% indicated that they would consider using one “from time to time as a sounding board.” Expertise in retirement planning and income was at least very important to 63% of do-it-yourself investors, while 78% said it was very important or critical that an advisor be a fiduciary.

Asked where advisors could provide the most value, 62% of the DIYers said helping to identify potential financial risks and opportunities, 54% said maximizing investment performance and 51% said an advisor could help ensure lifestyle maintenance in retirement. A little less than half, 46%, said it was making sure their clients never run out of money.

It’s in those last two areas where Midland Advisory wants to help provide solutions for registered investment advisors who may be unaware that fiduciary-friendly insurance solutions even exist.

“It’s very difficult to find solutions that are truly dedicated to helping mitigate some of these healthcare scenarios,” Sinclair explained, describing those risks as “portfolio kryptonite.”

“And it’s especially difficult for RIAs and fee-only firms because a lot of solutions and insurance products are not designed to be commission-free,” he said. “Furthermore, it may be very difficult to implement a plan that would include those strategies without the proper licensing to enact them or make changes directly.”

Following a 2019 ruling issued by the IRS, he said, insurance carriers have been empowered to create fee-friendly solutions for advisors by allowing them to extract fees directly while avoiding pre-existing tax implications and certain contract-by-contract problems that came with fee extraction.

Sinclair is aware the word ‘annuity’ still carries negative connotations for many advisors but expressed surprise, and a little dismay, that they haven’t leapt at the new opportunities and said it's important that they educate themselves. 

Of investors that responded to the October survey, 17% expect retirement income from at least one annuity.

Arguing that historical rules-of-thumb regarding anticipated retirement withdrawal rates are simply insufficient under the new reality, Sinclair said his firm provides solutions that can reduce a good chunk of the related risk while allowing advisors to fulfill their fiduciary obligations.

“For advisors that are paying attention, there are a lot of different solutions now that are built specifically for fiduciary practices,” he said. “It's not just us. There's a bunch of other companies that have gotten into the space and the technology is beginning to catch up. You couple all that with the IRS ruling and it's a very exciting time.

“I think that we're going to see a lot more adoption moving forward,” he predicted.

The full results of the investor survey, along with a webinar featuring Sinclair and Managing Director of Wealth Management at Informa Connect Mark Bruno, can be accessed via the embedded links.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.