Russell survey: Financial advisors face off against retirement income challenge
Seattle, WA June 13, 2012 Most financial advisors are actively working to address one of the most important challenges in the industry today: helping individuals generate reliable income after retirement, according to global asset manager Russell Investments' latest quarterly survey of U.S. advisors, the Financial Professional Outlook (FPO). Yet advisors face a series of significant obstacles, from product options to clients' unrealistic expectations.
Nearly three-quarters (72 percent) of the advisors surveyed in the latest FPO said that retirement income planning is either a large or core part of their practice, with another 23 percent indicating it to be a small but regular component of their activities.
Many advisors are also dedicating time to learning more about retirement income planning and strategies more than 98 percent of survey respondents say they are trying to build expertise in retirement income planning. However, advisors also indicated that there is no consensus on the right resources to consult. Respondents reported they are turning to a variety of sources, including online material and books (68 percent), industry peers (52 percent), fund companies (49 percent) and accredited courses (45 percent).
"With 10,000 Americans reaching retirement age every day, a growing number of investors are turning to their financial advisors for help in determining if, when and how they'll be able to retire,1" said Phill Rogerson, Managing Director, Consulting and Product Development for Russell's U.S. advisor-sold business. "Most advisors are trying to tackle the retirement income challenge, but many feel the investment industry has not provided the right tools to set a standard for how this should be done. Investing to produce sustainable retirement income and maintain some level of flexibility is a very different challenge than investing and saving for retirement and advisors are clearly struggling to find the best way to do this."
The current iteration of the FPO includes responses from more than 350 financial advisors working in 122 national, regional and independent advisory firms nationwide. Russell Investments works with financial advisors to help their clients achieve investment outcomes through a multi-asset approach to investing.
Advisors facing obstacles as they engage clients in retirement income conversations
Despite the continued focus of advisors on retirement income planning, FPO survey respondents said that they believe only half of their clients (54 percent) have realistic expectations about how much income their investments will provide them in retirement. Additionally, 38 percent of advisors say that running out of money in retirement is one of the most common topics of conversations they initiate with clients, with 34 percent indicating that clients are often bringing up the same topic.
The main obstacles advisors listed as impediments to clients' realistic expectations about retirement income needs included a client's incorrect estimation of how much money they will likely spend in retirement (61 percent), information they get from "non-professional" sources like the media, family and friends (53 percent) and a lack of understanding about how current spending and saving patterns could affect their retirement (50 percent).
Of these, advisors feel that the most difficult obstacles to overcome are misinformation (27 percent) and clients' lack of understanding of how current saving and spending may impact their retirement (25 percent).
"More than ever before, individuals are aware of the risk of running out of money in retirement. Advisors must work with clients to develop comprehensive, outcome-oriented financial plans that are revisited frequently and demonstrate a portfolio's progress towards goals," said Rogerson. "Creating this type of retirement plan benefits both the client and the advisor. Planning helps the client become disciplined, instilling confidence and trust in their advisor. In turn, client meetings are focused, resulting in more efficient and productive conversations for the advisor."
In a recent research paper, Russell asserted that the first step an advisor should take when constructing this type of retirement plan is comparing the size of an investor's assets (investments and future savings) to his or her liabilities (debt and future spending needs). By taking the ratio of assets to liabilities and arriving at an investor's "funded ratio," an advisor can help that retiree make informed decisions about how much he or she might spend, and their overall readiness for retirement.
Advisors recommending funds, more so than annuities, for retirement income
Advisors reported that in order to help clients achieve retirement income goals, they often or always recommend a diversified portfolio of mutual funds (75 percent), dividend-paying equity funds (64 percent) or bond funds (51 percent). Immediate annuities and fixed annuities were among the least popular options, with 61 percent and 64 percent respectively saying they rarely or never recommend them for retirement income planning.
"It's clear that advisors are recommending products that can integrate well into the advising process and that offer some level of control. But it's important that advisors expand beyond an asset-only view of retirement portfolio allocation and try to develop an adaptable strategy that considers a client's individual circumstances, including the liabilities of spending needs," said Rogerson.
More about Russell's Financial Professional Outlook
More information about the FPO, including a video and a full report of findings, can be found at: www.russell.com/Helping-Advisors/YourBusiness/FinancialProfessionalOutlook.asp.
About Russell Investments
Russell Investments (Russell) is a global asset manager and one of only a few firms that offer actively managed multi-asset portfolios and services that include advice, investments and implementation. Working with institutional investors, financial advisors and individuals, Russell's core capabilities extend across capital markets insights, manager research, Indexes, portfolio implementation and portfolio construction.
Russell has about $155 billion in assets under management (as of 3/31/2012) and works with 2,400 institutional clients, more than 580 independent distribution partners and advisors, and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell has $2.4 trillion in assets under advisement (as of 12/31/11). It has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell traded more than $1.5 trillion in 2011 through its implementation services business. Russell calculates more than 80,000 benchmarks daily covering 98% of the investable market globally, 85 countries and more than 10,000 securities. Approximately $3.9 trillion in assets are benchmarked to the Russell Indexes.
Russell is headquartered in Seattle, Washington, USA, Russell has offices around the world including Amsterdam, Auckland, Chicago, Frankfurt, London, Melbourne, Milan, New York, Paris, San Francisco, Seoul, Singapore, Sydney, Tokyo and Toronto. For more information about how Russell helps to improve financial security for people, visit www.russell.com or follow us @Russell_News.
Jordan McKerney, 206-505-1858
Elizabeth Shapiro, 718-875-7606
1 Pew Research Center, The Databank, www.pewresearch.org, 11/25/11.
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