As a retiring population’s wealth management goals shift from accumulation to decumulation, the wealth management industry is struggling to catch up, according to a new Aite Group report.
Investment outcomes and lessons from 2008 continue to weigh heavily on investors’ minds, and many consumers were unable to do the one thing necessary to enjoy a comfortable retirement: save adequately, the report on the state of the U.S. retirement income marketplace noted.
As a result, retirement income firms across various silos – banks, broker-dealers, independent advisers, registered investment advisers, insurance firms, asset managers, and defined contribution record-keepers – are grappling with the question of how to construct appropriate and suitable retirement income plans for clients across various wealth bands.
“The shift from wealth accumulation to decumulation is where financial advisers and distribution firms must transform their practice-management skills,” said Greg Cherry, Aite senior analyst and author of the report. “The accumulation practices of the past are simply not sustainable as consumers demand less market risk and an increased focus on one day replacing their paychecks with retirement paychecks.”
For many in the mass market and mass affluent segments, working for income will be necessary, as pre-retirees deal with sequence of return risk, withdrawal rate risk and longevity risk, the report noted. Labor force participation rates have been trending up for those 65 and older from a bottom of 12% overall in 1990, to 18% in 2010, to a projected 22% in 2018.
“The challenge will be overcoming employer biases, especially for those seeking to replace all or a large portion of their prior income levels,” according to the report.