Advisors Need New Questions for Post-DOL Planning

The move to a holistic financial planning approach is going to leave advisors with a new set of planning questions, annuity experts said Tuesday.

The checklist will range from Social Security, to health care expenses to pinning down where a client's assets are located across accounts or spread around different financial services firms.

Answers to those questions will determine how much lifetime income clients need to fill the shortfall, if any, between what clients receive from savings and entitlements and the amount they need to spend to live comfortably in retirement.

"I'm spending a lot of time with financial advisors on Social Security and Medicare planning," said Nathan Lew, director of advanced markets with Axa Distributors.

Lew was one of several panelists who spoke at the annual conference of the Insured Retirement Institute which organized several panels around how advisors should prepare for the fiduciary rule.

A stone-cold understanding of the shortfall is likely to emerge as a vital part of the fiduciary duty advisors are expected to bestow on clients beginning next year under the Department of Labor’s fiduciary rule.

Preliminary research indicates that the number of Americans who are going to need help figuring out how much they need to fund that gap is enormous and surveys indicate that health care costs in retirement is a No. 1 concern for consumers.

Asking about the physical health of a client is now related to a fiduciary transaction executed by an advisor, said Kevin Knull, president of PIE Tech's MoneyGuide Pro platform.

Of the 1.6 million financial plans reviewed by PIE Tech over the past two years, 99 percent of people say they are worried about outliving their money in retirement, Knull said.

Suitable Not Enough

Tuesday's panel discussion was titled he session “Fiduciary Ready? Moving from Suitability to Fiduciary."

Under the fiduciary standard, it will no longer be enough for financial advisors to find a product deemed merely suitable for clients.

In other words, advisors need to do the deep dive when fact-finding on a client's behalf.

Is a client potentially exposed to big health care outlays? Are there other alimony-related expenses that retirees have to plan for? What about prior business debts? What is the state of the marriage?

As people live longer, they have a chance to start over and many people who marry enter into a second or third marriage.

As many as 40 percent of marriages today involve a second marriage and many couples are also divorcing later in life, said Lew.

Beginning in April, financial advisors issuing recommendations for retirement accounts will have to follow the “prudent man” standard imposed on pension fund managers by the Employee Retirement Income Security Act of 1974.

Advisors must ask whether guaranteed income from an annuity even makes sense for a client. What about exchange-traded mutual funds or target-date retirement funds? Or do other products provide a better solution for a client?

Many advisors and executives with insurance companies and broker-dealers are worried about the liability associated with the requirement to recommend products that are in the best interest of a client.

Investors could turn around 10 years after the purchase of an annuity and sue an advisor and the broker-dealer if the product is no longer perceived to meet the retiree's need, forcing many advisors to consider leaving the industry.

Uphill Battle

Documentation and the implementation of recordkeeping platforms to support an advisor's investment recommendations are also playing a key role, said Warren Posner, senior vice president of complex product management with LPL Financial, which supports 14,000 financial advisors.

Firms are going to have to support why a brokerage or an advisory account is more appropriate for a client, he said.

Recent statistics hint at the uphill battle faced by millions of retirees and pre-retirees who are underprepared for retirement.

A 65-year-old woman would have to invest $425,000 in a life-only annuity to generate $24,960 in annual pension income, according to an Insured Retirement Institute report published yesterday.

A 65-year old man would have to invest $395,000 in a life-only annuity to generate $24,948 in annual income, the report found.

Although 401(k) plans held $4.4 trillion in assets on June 30, 2014, the median 401(k) account balance was just $18,127 at the end of 2014, according to an analysis by the Employee Benefit Research Institute.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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