It is ten years in the future. Markets haven't performed exactly as you projected over the last ten years (imagine that). As a result, your client’s income distribution plan is slightly off track. You are now being questioned concerning the strategy you recommended to the client. The key question is how did you determine what percentage of your client’s income should be guaranteed? What would you have to document your decision? Unfortunately, for many advisors, the answer would be not much.
It is an interesting scenario. And one that is likely to play out over the upcoming years and decades. Determining the exact percentage of a client’s income that should be guaranteed is a complex question. Items such as amount of investable assets committed to produce retirement income, total cost of basic necessities, guaranteed income from pensions and social security, as well as a client’s emotional desire to guarantee they will never outlive an income stream all play into the equation. Often times, there is no single right answer and an argument can be made for several strategies. What an argument can’t be made for is not having a systematic means to determine this decision in your practice and document the reason for any split between guaranteed and non-guaranteed income producing products.
I encourage you to check with your broker / dealer and see what tools they have developed to help you determine and document what the appropriate amount of guaranteed income is for your clients. Securities America has developed the ROI Profile to help advisors make this decision. Click the download tool below to view the ROI Profile being discussed. This profiling tool is the first assessment tool that measures not only the client’s sensitivity to volatility (traditional asset allocation risk) but also measures their sensitivity to fluctuations in their income stream. It is an ideal tool to determine and document the product allocation between guaranteed and non-guaranteed income products.