Trends in Retirement Income Delivery

1. Trends in Retirement Income Delivery RIIA Member Webinar Practical Perspectives and GDC Research April 20, 2011

2. What are Advisors Doing? • Virtually all advisors are serving some retirees • But the environment has changed • Longevity • Greater risk • Capital markets uncertainty • Changing client behavior • Retirement income delivery is in the early stages of development • No universal method or approach • Key factors for a retirement income practice • Approach to advice • Constructing portfolios • Product and services offering

3. Who are They? • Retirement income cuts across all advisor channels and nearly all client types • Advisors approaches vary by: • Channel • Practice type (planner, money manager, etc) • Level of advisors client base near or in retirement • Method of compensation • Level of experience • Few best practice advisors in the marketplace today

4. The Addressable Market Spectrum Best Practice Unbelievers Uneducated Aware Addressable Market • Not interested • Don’t believe that Retirement Income is a distinct discipline • Maybe less than 5 yrs from transitioning out • Unaware of the opportunity • Often an inexperienced advisor with a young client base • More pronounced in the wirehouse and bank channel • Require basic education • A large number of advisors and more experienced • Range from unsure on how and when to shift their practice to those in early stages of transition • Need assistance in refining their process • Represent less than 5% of advisors • Very confident in their process • Wholesalers need to be knowledgeable of their process • Want more tactical or specific support

5. Advisor Focus on Retirement Income • There is a correlation between the number of clients an advisor has in retirement and their awareness and focus on retirement income Percentage of Nearing or In Retirement Source: Trends in Retirement Income Delivery by GDC Research and Practical Perspectives, 2Q 2011

6. Myths of Retirement Income Delivery Perceptions Reality “It’s a wasting asset.” Adds assets through consolidation and new clients “It’s too hard and I don’t have the skills.” Leverage existing expertise and network with specialists “Clients don’t ask for it.” Growing demand for support and help in defining the issues “It will take too much time.” Retirement Income clients are easier to retain “I’m too old.” Older advisors can apply personal and professional experience

7. Understand that Retirement Income is a Distinct Discipline Source: Trends in Retirement Income Delivery by GDC Research and Practical Perspectives, 2Q 2011

8. Focus on Retirement Income Pays Off for Advisors Retirement-Focused Advisors Are Growing By: • Leveraging growing demand for help and expertise • Affirmation of income philosophy • Planning and advice-based relationships • Adding value beyond investment performance Change in Retirement Clients Served Source: Trends in Retirement Income Delivery by GDC Research and Practical Perspectives, 2Q 2011

9. Need a More Formal and Deliberate Process Who to Target? Client Needs and Wants • Having a defined and deliberate process is essential • Need to marry a strong retirement income process with identifying and applying the right solutions • Most advisors fall short on the discovery process • Services expand and accommodations become mainstream • New technologies and platforms emerging • Advisors need more guidance and support in transitioning their practice Services to Offer? What Income Philosophy? Products and Investment? Technology to Use? How to Get Compensated?

10. Significant Variation in Retirement Income Philosophies No single agreed upon philosophy to guide retirement income delivery Three core philosophies most prevalent, each with specific characteristics and variation in how they are applied • Risk Adjusted Total Return Approach • 4 in 9 advisors • Similar to accumulation approach • Broadly diversified portfolio • Draw down percentage of portfolio Pros: Easy to implement and scale Cons: Income exposed tomarket risk Pros: Resonates with clients and offers down market shield Cons: Hard to implement and track • Pooled or Bucket Approach • 1 in 4 advisors • Duration based accounts • Income specific objective • Use of guaranteed vehicles • Hybrid or Income Floor Approach • 1 in 3 advisors • Create income floor to meet minimum needs • Manage remainder of portfolio for total return • Not duration based Pros: Combines strengths of other philosophies Cons: Maintaining income floor Source: Retirement Income Trends by GDC Research and Practical Perspectives, Q1 2011

11. Perceptions in Retirement Income • Advisors facing new challenges given capital markets environment Rethinking Approach Managing Risk Difficult Generating Income Difficult Confident with Client Goals Source: Trends in Retirement Income Delivery by GDC Research and Practical Perspectives, 2Q 2011

12. Retirement IncomeProduct Allocation Advisors integrate a wide range of solutions for retirement income Source: Trends in Retirement Income Delivery by GDC Research and Practical Perspectives, 2Q 2011

13. Top 3 Vehicles Advisors Expect to Increase Usage Variable Annuities Rank 1 Alternative Investments Rank 2 Exchange Traded Funds (ETFs) Rank 3 Source: Trends in Retirement Income Delivery by GDC Research and Practical Perspectives, 2Q 2011

14. Top Retirement Income Providers • Income • Annuities • MetLife • Jackson • Hartford • ING • Protective • Lincoln • Genworth/GE • Pacific Life • Nationwide • John Hancock • Prudential • New York Life • Mutual Funds • American Funds • Franklin • PIMCO • Fidelity • MFS • Vanguard • BlackRock • Oppenheimer • ETFs • iShares • Vanguard • State Street • PowerShares • ProShares • First Trust • VAs • MetLife • Lincoln • Prudential • Jackson • Pacific Life • John Hancock • Hartford • Transamerica • Sun Life • Protective • Allianz • Most advisors use the same providers they use in accumulation • Stay in their comfort zone and often don’t have time to learn about other providers and offerings Source: Retirement Income Trends by GDC Research and Practical Perspectives, Q1 2011

15. Need to Mitigate Advisor Capacity and Practice Scalability • Retirement Income support is challenging to scale • Time capacity and knowledge constraints limits the ability to serve clients • Advisors don’t have time to research new solutions • Advisors need to be conscious of their capacity • Expand networks of professionals and resourcesSolutions? • Support needs to aid advisors with their capacity issues efforts • E-wholesaling • Easy to use an understand marketing and education materials (client & advisor) • Need for tools and technology Advisor Time Allocation Source: Advisor Best Practices Report: Retirement Income and Transition Support by GDC Research and Practical Perspectives, Q3 2008

16. Retirement Income Support:Top Three Advisor Needs Product Training Tools/ Software Training/ Education • Over one half to nearly two thirds want more training and more tools and software/technology solutions Source: Trends in Retirement Income Delivery by GDC Research and Practical Perspectives, 2Q 2011

17. Creating a Retirement Income Solutions Spectrum High Advice/Customized Solutions Packaged Solutions Level of Advice & Customization Low Low High Client Affluence • Solutions will vary based on client affluence and advisor skill level • Not a monolithic market -- products need to address the needs of various advisor segments and retirement income approaches • Advisors need help with small client solutions

18. Dennis Gallant, President GDC Research (781) 314-0606 office (508) 397-9296 mobile gallant@gdcresearch.com www.gdcresearch.com Contact Information Howard Schneider Practical Perspectives (978) 590-7290 howard.schneider@practicalperspectives.com www.practicalperspectives.com 18