A lack of fundamental financial planning over how to secure a comfortable retirement is a cause for concern for both ‘baby boomers’ and ‘millennials’, according to financial advisers involved in a global survey carried out by Natixis. 
The report, which surveyed 2,400 financial advisers across 16 countries, found their concerns revolve around investors both saving for retirement and living in retirement, and these worries aren’t just reserved for cash-strapped and inexperienced millennials.
Only 13 per cent of advisers believe their clients have a competent understanding of their retirement saving goals, while just 12 per cent say their clients understand their retirement income goals well.
A total of 16 per cent of advisers believe their clients fully understand their retirement lifestyle goals.
“At an average age of 46, the advisers we surveyed find themselves directly in the middle of the two powerful demographic forces. But it would appear that advisers are not yet ready to focus their offerings on the needs of these two very different generations. Six in 10 say they do not believe they need specialised niche or segment strategies to focus on millennials, women or entrepreneurs,” the report stated.
“Clients from the baby boom generation (born between 1946 and 1964) have been the backbone of growth for advisers and the financial industry worldwide for a long time. As their goals shift from building wealth to generating stable income, advisers will need to adapt to new investment concerns and implement new portfolio strategies.”
“As much as things change for retiring clients, advisers see that a lack of fundamental financial planning will continue to dog these investors.”
The planning gap that has been found among clients has also led to unrealistic expectations of how much money is needed to live comfortably during retirement, according to Natixis.
On average, advisers’ clients expect they will need the equivalent of 63 per cent of their current income to live from, while advisers consider somewhere between 75 per cent and 80 per cent to be more accurate.
If this average is based on an annual salary of $100,000, or £65,168, it would mean a discrepancy of $17,000 (£11,079) between adviser and client estimates and, over the average retirement, this amounts to a $500,000 (£325,839) shortfall, according to Natixis’ data.
“Here is where assuming the role of income expert can be expected to help advisers better service this still-influential client base,” the report continued.
“Income portfolios require a different approach from what may have been in place for a client’s accumulation phase. Drawdowns are the single biggest factor in determining how long client assets will last in retirement. It is important to remember that the rate at which funds are spent down has a ripple effect on decisions about risk management, return generation and which sources of income are tapped when.”
Income portfolios have therefore generated new concerns for advisers when building their clients’ portfolios and this problem is intensified when the clients’ lifestyle goals aren’t necessarily clear.
According to the poll, generating stable income is advisers’ second-biggest concern after generating sufficient income for clients’ lifestyle goals, while generating returns that will beat inflation ranks third in terms of adviser worries.
Advisers’ biggest retirement income portfolio concerns in 2015
Source: Natixis
“In building retirement income portfolios, advisers see their greatest challenge in generating income above and beyond their clients’ most basic needs,” the report stated.
“A lack of definition in client lifestyle goals can only compound this problem. Generating stable income is the next highest ranked concern, as fickle markets challenge advisers’ ability to deliver income streams that are critical to retirees.”
In Natixis’ recent Retirement Income Survey of US Advisers, it was found that for the 400 advisers that participated more than two-thirds of their clients were older than 50.
This, according to the asset management company, means that institutional techniques such as liability-driven investing (LDI) should be adopted by advisers to ensure that their clients receive a reliable and regular income.
LDI is a technique commonly used by pension funds and balances returns with a set target income based on how much the client will need each year in the future.
Bonds within the portfolio are dedicated to producing the cash flow and that cash flow must factor in inflation adjustments, irregular spending and social security payments.
Patrick Connolly, head of communications at Chase de Vere, agrees that advisers shouldn’t focus on maximising income for their clients, regardless of their age or risk tolerance.
“People should aim for a sustainable income to maintain their standard of living throughout the rest of their lives,” he explained.
“Those who take too much income risk running out of money, while those who take too little risk jeopardise their standard of living. It is very much a balancing act that needs to be regularly reviewed.”
“For most people the best approach to maintain their standard of living in retirement is to take independent financial advice.”
