Will Retiring Retirement Plan Participants Turn to You?

To keep retiring clients, you need to provide services other than investment management, noted M. Kristi Cook, an attorney with her own practice in Horsham, Pennsylvania, speaking at the National Tax-Deferred Savings Association 403(b) Summit in Washington, D.C. “What do you say when your clients ask how much they need to retire? Do you help your clients determine if they have sufficient assets for retirement? Where are they getting information about Social Security, defined benefit pension options and costs, defined contribution withdrawal strategies and beneficiary planning?” Cook queried. “This is when they need a lot of help.”

To prepare to provide the services retirees are seeking, advisers should listen to their questions and seek information from surveys and social discussions about the services clients want. Then it’s important to acquire the knowledge necessary to provide those services, find any necessary partners to assist in providing those services, and get the best tools to help.

Broker/dealers are good resources for financial advisers, according to Cook. They can design what advisers need and have compliance departments. In addition, advisers can learn what they need to know from continuing education courses, peers and industry conferences.

As for tools, financial advisers can find software to help them provide these services to retiring participants, but every piece of software will give a different answer to clients’ questions, Cook noted. Some modeling software offers “standards” for retirement income need—80% of pre-retirement income, 4% draw down rate, a strategy for having different “buckets” of assets to dip into at different times—“but I’m not sure any of these are right,” she said. Edward Dressel, president of Trust Builders, Inc. in Dallas, Oregon, added that the simple models do not work well for those who have a defined benefit retirement plan benefit.

Cook told Summit attendees she was speaking as a consumer who has just gone through the process of trying to get information for her husband about whether he has enough assets to retire or when will be the best time for him to retire.

Models provide generic information, ballpark numbers, and clients want help that is specialized to their situations. Any software advisers use must be customizable, according to Cook. She warned that clients will not go to an attorney for tax and legacy planning issues because they think that’s what they pay an adviser for. Advisers need to let clients know up front what they can and will do and what they can’t or won’t do.

But, clients will want to know how to maximize Social Security, Cook said, and advisers should make sure the software they use has all the rules accounted for so they are not giving the wrong advice. “You cannot get enough Social Security strategy information, and you cannot be an expert on it on your own.”

There are about 17,000 different scenarios for Social Security strategies for a couple with both spouses about the same age, Dressel noted. “Read the Social Security books,” he suggested. He also mentioned that Imagisoft, Still River Retirement Planning and WealthTrace are three software solutions advisers may use that include government pension information.

Interestingly, both Dressel and Cook said they had used the benefits calculator on the Social Security Administration’s website and it gave them incorrect numbers. Both said they called Social Security to inform the agency of this and were told there was nothing the agency could do about it.

Dressel added that the software needs to integrate Social Security with other assets. His own firm’s TRAKS software integrates defined benefit plan information, estimated Social Security benefits and spousal information, and offers different scenarios for income replacement at different retirement ages. It can also integrate other assets. He said a good software tool will allow an adviser to manipulate the numbers easily, and some will show how long money will last at different rates of return and with different withdrawal rates.

“I fear if advisers only do overly simplistic scenarios, they will lose clients,” Dressel said. Advisers need software that can get into clients’ complicated situations, “this will offset you from others.”

Cook added that when including defined benefit plan information, advisers should know what the plan document says the benefits are. “Clients expect you to know it, because they don’t,” she said, suggesting advisers become familiar with information about pension plan payments and survivor benefits in the event of early retirement or normal retirement, cash out provisions and cost-of-living adjustments (COLAs).

“Sell timing strategies as your value add,” Dressel said. “Don’t mention any product until there’s a problem a product can solve.”

He added, “Whatever tool you use, make sure the client takes home something you can be proud of.”