PLANADVISER – 12/01/2008
By some accounts, the accumulation phase was the easy part of helping retirement plan participants with retirement planning-now they will need help living on those savings. As workers retire, risk management will be a significant component of retirement income planning-and this presents an incredible opportunity for financial advisers willing to make the commitment.
David Macchia, President and CEO of Wealth2k, Inc., is a proponent of using Web-based technology and new media to improve education, productivity, and compliance in the financial services industry.
While Macchia has been at Wealth2k, the firm has developed Traject, a Web-based communications network that integrates video content syndication with real-time management of agents’ and advisers’ consumer-facing marketing initiatives. The firm also offers The Income for Life Model, an open-architecture retirement income distribution solution.
PLANADVISER talked with Macchia about the need for financial advisers to get their “A-game” ready for distribution planning.
PA: What’s the future of retirement planning, and how might it be different from today?
Macchia: Primarily, we’re talking about advisers, and I think the first recognition is that the idea of reporting over the tools and techniques of accumulation won’t work when we’re presented with the challenge of investing during the “spend out” phase. So, for me, the idea of the retirement professional of the future is one who is first the master of the management with all the risks. Managing the risks begins with understanding what they are, and then figuring out strategies to mitigate them.
Can advisers effectively serve both accumulation and distribution markets?
I do think it’s possible for advisers to serve both markets. However, I think that’s going to require training, and a fair amount of enlightenment, because the danger for advisers is that they just fall back into a position where they tend to believe that the continuation of their present methodology is going to be enough.
Many advisers in large financial companies have been very successful in working with clients during the accumulation phase, and don’t understand the complexity and the magnitude of the challenge that people face when they’re confronted with having to invest their assets for income generation. It really is an apple and an orange. I think more and more people are beginning to understand that distinction, but there’s still a lot of education that needs to be done.
You’ve long been a technology proponent. Can you describe some of the ways advisers can use technology to deliver their services to the mass market?
I’m a big believer in advisers utilizing virtual clones of themselves. I think advisers in this instance need a double sense of identity. They need a physical presence that functions in a 9 to 5 paradigm that can work consultatively with a certain level or number of prospects. They also need a virtual presence that can support large numbers of individuals whom they might not normally take personal time with, and there’s nothing wrong with that. I’m less concerned about how they interact with people. I’m more concerned that they do interact with people and provide good solid frameworks for retirement investing and income generation.
So advisers should all be setting up these virtual, online, personas?
Yes, and those online personas can offer interactivity and contact back to the adviser, phone meetings, and Web conferences. There’s a lot of packaging that can be done around efficacious investing contents that can handle a great majority of people in that middle market who need solid guidance. So, I think that’s all possible, and I think that’s preferable to just selling someone a product and saying, “That’s your income strategy.”
By product, I assume you’re referring to annuities but, traditionally, some of the concern around annuities used for retirement income was that they were “sold” to participants, and there wasn’t an affirmative purchase decision.
You’ve hit a very important point. Because let’s face it, people oftentimes didn’t understand the products they were investing in during accumulation-at best, they had a hazy understanding. What they probably believed in was their adviser. I think that in retirement, now, we’re at an inflection point where the role of confidence changes, and that implies a big educational and communications challenge for product manufactures and advisers.
How can advisers address that challenge?
There are a lot of planning programs out there, as I’m sure you know. That takes people to a certain level. Those programs assess and determine how much retirement income someone needs. They’ll identify discretionary versus necessary expenses, and they’ll come up with a total income need. One of the things that I believe in is that a strategy that can only be used for income generation not only has to recognize all of the relevant economic factors, but also has to recognize psychological factors. What kinds of components will have the effect of providing the highest level of psychological, not just financial, dividend to the client? The psychological dividends will prepare an investor to stay with a strategy for a longer period of time, which ultimately yields better results than losing faith in a strategy, becoming frightened at short-term results, and walking away from what otherwise would have been a well-conceived plan.
What is the role of an adviser in developing those plans?
People have different views on how to do it, but I think it is important that advisers embrace a view. Accumulation we all understand but, when it comes to income generation, there are what I’d like to refer to as religions. You have the religion of medical draw; the religion of lifetime annuitization; the religion of variable annuity income riders.
In retirement income planning, belief in something goes a long way, and probably the best thing to believe in is a strategy that takes the best of these various “religions” and combines them into a strategic framework that has a high probability of a long-term favorable result.
Ultimately then, this opportunity is significant but, as you said, it’s only a huge opportunity if you’re able to do it right.
People who take this on face an awesome responsibility-but one that has the most important long-range implications for the people that they’re counseling. Getting this right, or getting this wrong, is what will govern the quality of life for people who look to advisers.
I’m a big believer in the concept of doing well by doing good, and I think that is an apt description for the potential that advisers have before them here. There’s so much money and emotion. There are so many people who need guidance in this area. Advisers are positioned for leadership here, and I think that those advisers who show leadership in this important area are the ones that are going to have the greatest success.
PLANADVISER Staff – 12/01/2008