Pre-retirees want income planning advice, beyond investment products

• Key insight: Pre-retirees are interested in personalized decumulation roadmaps, not just standalone investment products, offering advisors an opportunity to demonstrate value to a prospect pool eager for advice.
• Expert quote: "You don't want to make your clients experts, but you want to give them enough information and knowledge so they feel like they're somewhat in control of co-piloting the decision with you. But at the end of the day, they're trusting you and your judgment." — Sri Reddy, Principal Financial Group
• Supporting data: Some 40% of participants want "a personalized, detailed, and actionable plan to follow in retirement," and 39% would like guaranteed monthly payments that would last after their savings are depleted.

Pre-retirees in the 401(k) space are eager for more than advice on investment products, specifically looking for help with flexibility in how they save and spend, according to a new report from Cerulli Associates. The data suggests there are opportunities for advisors to show their value in the space.

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Almost half of plan participants, 46%, want to be able to withdraw money at any time, and 31% want to be able to change the investments they are in, according to the report, released this month.

Meanwhile, 40% of participants want "a personalized, detailed, and actionable plan to follow in retirement," and 39% would like guaranteed monthly payments that would last after their savings are used up. That's far more planning than these clients tend to get under a workplace defined contribution plan and suggests there are opportunities for advisors to move these workers into a client pipeline.

"Most pre-retirees are uncomfortable making key retirement income decisions without an advisor's help," Chris Bailey, a director in Cerulli's Retirement practice, said in a statement. "As much as they want guaranteed income in retirement, pre-retirees also want a personalized, detailed plan they can follow in retirement."

It might be helpful for plan sponsors to offer a range of solutions to participants instead of depending on individual products, according to the report.

"Recordkeepers and plan advisors have an opportunity to help participants develop retirement plans to utilize these products effectively," Bailey added in the statement. "Perhaps increased access to planning and advice will reduce the need for flexibility that intermediaries and participants seek."

Another recent report from Cerulli found 3.5% of wealth advisors' new clients come from defined contribution plans the advisors work with. Defined contribution specialists get an even higher percentage, 37%. Even so, advisors told Cerulli they would like additional help from their home offices in converting defined contribution plan participants to advisory clients.

Among the most significant findings from last year's version of the defined contribution distribution report were that assets in collective investment trusts spiked 25%, Bailey told Financial Planning in a statement. They have grown by about 20% each year since 2019, except for 2022.

"Advisor and consultant home offices are still getting comfortable with private markets in [defined contribution] plans and retirement income solutions," Bailey added. "We are not seeing any significant changes in attitudes and perceptions, but it is still early days. … Private markets introduce liquidity considerations, valuation methodologies, and fee structures that investment teams need to understand."

Clients might have multiple 401(k) accounts and IRAs, and advisors should keep track of what clients are invested in, whether their money is pre-tax or post-tax, what their withdrawal strategies will be and how they will manage required minimum distributions, said Sri Reddy, Principal Financial Group's senior vice president of retirement and income solutions.

Some choices contradict each other or would become very expensive to make happen, such as guaranteed income outlasting balances and flexibility to withdraw any time, and advisors can help clients understand the trade-offs involved, he added.

"I have a mechanic that I trust; he knows how everything works; and he just makes sure I can drive the car the way I need to," Reddy said. "I think advisors need to reorient on that. You don't want to make your clients experts, but you want to give them enough information and knowledge so they feel like they're somewhat in control of co-piloting the decision with you. But at the end of the day, they're trusting you and your judgment."

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