AssetMark Launches ‘Simple, Automatic’ Income Replacement Solution

AssetMark Inc. today announced the launch of Guided Income Solutions, a suite of professionally managed portfolios designed to provide reliable cash flow distributions while extending the portfolio life of clients in retirement.

Previewing the product for PLANADVISER, David McNatt, AssetMark senior vice president, product strategy and management, explained how Guided Income Solutions uses an automated “bucketed” investing framework. The idea behind this is to provide advisers with “a simple approach to converting clients’ nest eggs into a steady, tailored, and automatic income replacement based on their personal financial goals.”

McNatt demonstrated how Guided Income Solutions segments clients’ investments based on their unique short-term, intermediate-term, and long-term objectives. He said this “accommodates the psychological tendency for individuals to think about spending needs in terms of separate mental accounts.”

Within the solution, a medium-term and long-term bucket are each rebalanced gradually over time to systematically reduce risk as clients approach their target retirement ages, while the short-term bucket is personalized and replenished annually to provide for two years of liquid income needs. McNatt said this feature is a powerful tool for addressing sequence of returns risk.

“This liquidity bucket is meant to be a source of confidence,” McNatt said. “Regardless of the market swings, the stability bucket is there to be spent and to prevent you from having to sell your losses if you are going to be retiring in a market trough. This is one feature that makes our approach different from a standard total return solution. When volatility happens, having the liquidity bucket ready is incredibly important. The whole idea is to prevent selling losses at the wrong time.”

Explaining why AssetMark developed this solution, McNatt pointed out that Social Security benefits tend to only replace approximately 40% of the average retiree’s earnings. As private pension plans become increasingly rare, it is up to defined contribution plans to provide individuals’ with sustainable lifetime income for the retirement years. 

“Given the need for income replacement later in life, it’s critical for advisers to help their clients create long-term financial plans,” he said. “However, typical approaches to retirement planning require advisers to manually administer and rebalance cash flow movements while providing goals-based client reporting, which can be complex and resource-intensive.”

In addition to automatically providing fund-to-fund and bucket-to-bucket rebalancing based on long-term market conditions, Guided Income Solutions also features a retirement calculator. Advisers can populate the calculator’s digital interface with the amount a client wants to invest and the amount of income a client needs in a given disbursement period—as well as how long a client needs their periodic income to last.

“These personalized inputs and results are then used to create a financial plan and provide ongoing, visual investor reporting to ensure clients remain on track toward their personal income needs and retirement timelines,” McNatt said. “Guided Income Solutions enables investors to access their funds at all times, providing an alternative option to annuities.”

In user testing, according to McNatt, advisers found the concept of bucketing helpful in explaining this pros and cons of this approach to clients. They also liked the automation baked into the system.

“This is not a new idea necessarily but up until very recently, the practical implementation of this type of approach was very time consuming and complex,” McNatt said. “Advisers couldn’t rely on digital tools on the back end to drive the ongoing portfolio maintenance and the conversations with clients. So, we took their feedback and that’s how we created this solution. It’s taken 18 months to develop this. It’s meant to be a solution that addresses client needs and adviser needs.”