section 1 - The American College Online Learning Center

LO 6-1-2: Understand the FPA’s “Financial Adviser Retirement IncomePlanning Experiences, Strategies, and Recommendations” research study1. Overview of the “Financial Adviser Retirement Income Planning Experiences, Strategies,and Recommendations” research study. This study indicates the following key facts:a. There is an increased demand for retirement income services.b. The decumulation area of financial planning faces significant challenges andopportunities.c. The majority of surveyed advisors’ clients are already retired (30 percent),semi-retired (10 percent), or within 5 years of retirement (20 percent).d. The overwhelming majority of clients (81 percent) getting decumulation adviceare deemed delegators (clients who know they need to participate in the processbut expect their advisor to take primary responsibility for their financial success)as opposed to “validators” (do-it-yourselfers who want an advisor to give secondopinions and occasional advice).2. Usage of the three strategies according to the FPA Research Center:Advisor Use of Various Strategies/Approaches in Providing Retirement Income to ClientsSystematic withdrawal approach—Diversifyinvestments based on client’s risk profile and managethe total return of the client’s entire portfolio. Toprovide income, withdraw either a predeterminedor policy-based amount funded by a combination ofinterest, dividends, and/or portfolio holdings based onthe client’s income needs and economic conditions.Do NotUseOccasionallyUseFrequentlyUseAlwaysUse5.4% 19.8% 53.9% 20.8%Time-based segmentation approach—Set upseparate pools of investments with lowest riskinvestments in the near-term time horizon “segment,”somewhat higher risk investments in the next segment,and riskiest portfolio in the longest-term segment.Income is drawn from one segment at a time. Oncethe first segment is depleted, assets from the secondsegment are used for income.Essential-versus-discretionary incomeapproach—Classify client’s retirement expensesas essential or discretionary. Low-risk investmentsor annuity guarantees are selected to fund theessential expenses. A mix of medium- and higher-riskinvestments is selected to fund the discretionaryexpenses. Income is drawn from the respective poolsto cover essential and discretionary expenses.Less formal strategies—Clients mainly live ontheir pension and/or Social Security, which may besupplemented periodically.28.6% 33.8% 29.4% 8.2%35.0% 32.3% 26.2% 6.6%21.5% 56.0% 20.5% 2.0%Other 69.4% 22.7% 5.2% 2.7%6.6