If you’re wondering what’s in the retirement market for you as a financial advisor, the answer is: Plenty.
A lot of advisors balk at the idea of serving retiring Canadians. They say things like, “Why would I want to focus on a market where the assets aren’t growing? There is no more money for clients to add once the income streams are established and my book would actually be shrinking.”
Those arguments miss the point. The retirement income market is attractive for many reasons. First, the vast majority of investable assets held by Canadians are in the hands of people over age 55, and that baby boomer generation is nearing retirement. Further, the number of Canadians turning age 60 will increase annually for the next 20 years, so the average amount of investable assets that comes with acquiring a new retiring client is quite large when compared with accumulation clients.
In addition to helping your existing clients make the retirement transition, your practice should focus on taking accumulated assets away from other advisors and institutions. According to a study released last spring by the U.S. insurance association LIMRA, 84% of boomers over age 50 didn’t have a formal plan for converting accumulated assets into income at that time. The survey also found 68% of current retirees lacked similar planning. Assuming Canadian statistics reflect the same trends, there’s a huge potential market for advisors who know how to help clients manage such transitions.
Why do so many people who are headed toward retirement lack plans? Largely because most advisors don’t emphasize that aspect of the relationship; they’re too focused on the accumulation phase of an investor’s life. It’s this lack of focus that makes the segment such an incredible business-building opportunity for those willing to specialize. And, no, simply converting RRSP assets to a RRIF account is not retirement income planning.
Many investment realities distinguish the accumulation years from the investment years. Saving for retirement takes place over a long period, which means clients are better able to deal with market downturns. With clients in their prime earning years, advisors are able to explain volatility will average out over time, and in many cases can take advantage of down years to accumulate stocks that would otherwise be too expensive.
Those same clients become more reactive, however, when income is being drawn from their assets, because negative investment returns represent a further reduction in the value of the holdings being used to both live and to create additional income. If clients experience this “double drawdown” effect, it may become impossible to sustain the capital value of the income-producing assets, or to continue drawing income at the same level.
During the accumulation years, if assets don’t perform or capital is eroded through negative returns, retirement dates can be pushed back or additional savings can be added to the investment mix. Working with an income scenario forces us to address the investment portfolio with more diligence, and on a more frequent basis.