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What Financial Advisors Are Most Worried About in 2014

By Hal M. Bundrick

NEW YORK (MainStreet) Advisors who manage portfolios designed to generate retirement income for their clients are facing a growing concern: rising interest rates. Many are looking for new solutions from asset managers and insurance companies, according to a report released by GDC Research and Practical Perspectives.

The report says that a large number of advisors "still do not have the capabilities and processes in place to fully serve aging Boomer clients."

The primary challenge is generating sustainable retirement income while facing the headwinds of rising interest rates which can significantly impact the market values of fixed income portfolios.

"Given the recent low interest rate environment, most advisors rely on traditional solutions such as dividends from equities or similar funds and ETFs to generate sufficient income to help retirees meet day-to-day expenses," the report says. "While advisors are receptive to new solutions, most have made only modest changes in the past year to the providers or products they use for retirement income."

According to GDC, many advisors struggle with understanding the terms and benefits of complex retirement income investments, as well as the lack of performance histories of considered offerings and are seeking more training and education from providers.

"There is significant demand for solutions that advisors can use with retirement income clients," says Howard Schneider, president of Practical Perspectives and co-author of the report. "Managing portfolios to achieve the multiple goals of retirement clients is a critical and growing element of most practices."

Highlights of the report include:

  • The potential of rising interest rates in the coming year is the key factor driving changes in how advisors expect to manage retirement income portfolios in 2014
  • Over 70% of advisors increased the number of retirement income clients they serve in the past 12 months
  • Use of annuities appears to be far more selective than use of securities-related products, with only 10% of advisors using variable annuities for more than 50% of their retirement income clients
  • Roughly two in three advisors believe yield/income, liquidity, total return, and safety or stability are the most important factors in selecting the investment products they use to generate sustainable income for clients
  • Almost two in three advisors cite simplicity as a major challenge in using new products and solutions for retirement income.

--Written by Hal M. Bundrick for MainStreet

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