401k advisors increasingly realize the value of offering comprehensive financial planning and advice to participants, and the opportunity for growth it affords their business.
A now a new report illustrates the need, with Cerulli Associates noting that the “sheer volume of retirees (10,000 baby boomers a day) provides an opportunity for advisors to expand their services to more individuals approaching retirement as they navigate the complex set of decisions ahead.”
Research from the Boston-based research and consulting firm indicates that many 401k plan participants (including half of participants in their 50s) lack an official source of retirement advice, and this “advice gap” is particularly large for investors in lower wealth tiers.
“Tools and calculators helping investors translate account balances to replacement ratios and overall ‘retirement readiness’ (including assumptions for market returns and life expectancy) are hardly new, but providers must realize the need for expanded customization in this regard,” Anastasia Krymkowski, associate director at Cerulli Associates, said in a statement.
Advisors must also work to identify client pain points and consider all retirement income streams, such as Social Security—often an overlooked, yet vital part of retirement income, according to the firm.
Cerulli’s research shows that only 18% of active participants anticipate that Social Security will represent their primary source of retirement income, yet Social Security comprises the largest portion of income for retired households with less than $2 million in investable assets.
Meanwhile, nearly half of participants expect to draw on their 401k as a primary source of income in retirement.
“To deliver an effective and attractive retirement income solution, providers and financial advisors must emphasize Social Security and propose strategies that integrate government benefits with income generated from other investment products,” Krymkowski adds.
Cerulli finds there is a growing awareness of the need for affordable, high-tech retirement planning services to help manage multiple streams of retirement income in a tax-efficient manner.
As Baby Boomers transition to retirement and face these challenges, more comprehensive retirement income solutions are making inroads into employer-sponsored benefit plans and the retail wealth management space.
“Providers and advisors who focus on the fundamental financial questions facing retirees—How much is enough? Will I take a tax hit for this? What are my healthcare options? —and offer the technology to solve for these issues are well positioned to establish long-lasting client relationships,” Krymkowski concludes.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
