Among the most important duties of a fiduciary financial advisor is educating clients on the biggest retirement risks. Unfortunately, so many investors still see an advisor’s role as simply the person picking stocks, bonds, and funds to earn a good annual return, according to a 2019 study by Morningstar. While maximizing portfolio performance is important, risk management becomes the priority as people approach retirement and age through it. The advisor must educate clients on the biggest obstacles during a time that can last decades, not just years. 

Clients Understate Longevity Risk, Overstate Market Risk

A fresh research study by the Center for Retirement Research (CRR) at Boston College, published in July 2022, identifies five critical risks faced in retirement:

• Longevity Risk: The risk of outliving your money. The study found that clients underestimate longevity risk by about 50%. 
• Market Risk: With total U.S. household equity ownership surging to an all-time high of $40.9 trillion as of the end of 2020, according to SIFMA, there’s more concern than ever about what a prolonged bear market might mean for retail investors. Housing risk was also cited by the CRR, as relatively few retirees downsize to a smaller home in retirement. The authors concluded that retirees overstate market risk by a whopping three times.
• Health Risk: Climbing health care costs and often prohibitively expensive long-term care insurance makes out-of-pocket medical bills a major risk.
• Family Risk: The chance of an untimely and expensive divorce, or that a family member encounters a terminal illness or premature death are scenarios that have major impacts on a financial plan.
• Policy Risk: According to the 2021 Social Security Trustees report, Social Security benefits could be slashed starting in 2034 if Congress does not act. While unlikely, that is a situation that should be weighed by advisors managing long-term plans.

Constant Financial Planning Is the Key

Protecting client assets with the right financial plan is challenging enough given the above possible pitfalls. It’s often said that it is not so much about crafting the right plan, as about doing active financial planning as life events continue to unfold. Still, setting the right expectations and priorities with clients helps support the foundation of good planning outcomes. 

Reality: Investors Do Not Worry Much About Outliving Their Money

Getting back to the study, the biggest disconnect between clients’ perceived risk and actual risk lies with the first risk mentioned in the list above. While investors think market returns are most critical, it is longevity risk that can devastate a retiree’s financial situation if not managed properly. Simply put, running out of money due to living longer than expected must be front and center. Consider that for a married couple in good health at age 65, there is a 49% chance at least one of the spouses reaches age 90, according to the Social Security Administration and J.P. Morgan Asset Management.

Halo Helps Protect Against Longevity Risk

Annuities and other protective investments are solutions to address longevity risk. The advisor must also show clients how annuities work and why protecting against living too long is needed. Halo Investing’s award-winning digital platform and technology help advisors accomplish this tough task in several ways.

First, RIAs teaming with Halo can view and compare annuities, structured notes, and defined-outcome ETFs to find useful products for their clients. We believe in transparency and bringing costs down for advisors and their clients. Halo’s subject-matter experts are on hand to assist advisors through the entire research process. We offer guided case design, product recommendations, and annuity comparison reports. Halo streamlines the process to reduce application time. 

Next, Halo’s Outsourced Insurance Desk (OID) makes purchasing and managing fee-based annuities easy. An advisor does not have to go about the time-consuming process of acquiring insurance licenses. This is often where RIAs simply give up trying to fit annuities into client portfolios – but Halo has changed that. Our OID provides the infrastructure RIAs need to incorporate and manage annuities while fulfilling their fiduciary duties.

Finally, Halo helps handle much of the back office and settlement paperwork. Those operational tasks are another reason so many independent advisors do not venture far down the annuity-buying path even though they might believe such solutions are a good fit for clients. Partnering with Halo means RIAs bring clients a better service offering which can help cultivate relationships and even grow AUM.

Conclusion

Today’s retirees fail to grasp the dangers of outliving their assets. It is an unfortunate reality that so many advisors try to change. Halo Investing can help. Our protective investment solutions not only aid in reducing financial risks on a spreadsheet, but also show retail investors what risk management through annuities looks like. Our industry-leading platform has the tools and visuals necessary to instill financial confidence and peace of mind to retirees.

Please see our Halo Disclosure Page for important disclosures.