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Allison Bell

Life Health > Annuities

What if AUM Isn't the Best Measure of a Retirement Nest Egg?

By Allison Bell

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What You Need to Know

  • Researcher Michelle Richter-Gordon has proposed supplementing the assets under management metric with a new income under advisement metric.
  • This new measurement could help ease the resistance of some fee-based advisors to guaranteed income.
  • In addition to considering clients' apparent risk tolerance, investment fiduciaries should also factor in liabilities.
This is the second in a series of columns about annuities and retirement planning.

Michelle Richter-Gordon has an idea for a way to make life better for retirement investors: Add a ruler that does a better job of measuring what they really need.

She is the co-founder of Annuity Research & Consulting, a firm that helps retirement plan fiduciaries shop for lifetime income options for the participants.

Richter-Gordon, who also serves as executive director of the Institutional Retirement Income Council, has proposed supplementing the “assets under management” metric with a new “income under advisement” metric.

Today, a retirement professional might equate retirement planning success with maximizing a client’s pile of stocks, bonds, mutual funds, ETFs, crypto and gold bars, without thinking too much about whether, and when, liquid cash will squirt out and help retired clients pay for little things like, say, groceries.

Investment fiduciaries ask clients to fill out a risk tolerance framework, but aside from considering the client’s apparent tolerance for risk, “they are not required to think about the liabilities,” Richter-Gordon told me in a recent conversation.

Richter-Gordon believes that there could be many reasonable ways to define income under advisement. In a recent conversation, she proposed three possible models:

1. The retirement income projections now included in the lifetime income disclosures sent to 401(k) plan participants.

2. The income base used in annuity guaranteed lifetime withdrawal benefit riders.

3. A lifetime annuity yield index developed by CANNEX.

If a fiduciary rule applied to retirement professionals’ efforts to help clients maximize and stabilize income under advisement, rather than the pile of assets, “you’d see a lot more annuitization,“ Richter-Gordon predicted.

Why is a new measure necessary? Why can’t AUM-oriented advisors simply buy new income projection software modules?

David Lau, the CEO of DPL Financial Partners, a firm that distributes fee-based insurance and annuity products, talked about the psychological sandpaper slowing the gear shift at LIMRA’s recent annual meeting.

Some fee-based advisors have made an awkward peace with the possibility that income guarantees could make sense for some clients in some situations. But, in many cases, they continue to object to the idea that annuity guarantees are of interest, Lau said.

The advisors “”are more asset managers,“ Lau said. “They’re not salespeople. They manage the assets. And, frankly, they’re a little flippant about it. You know, if you’re about, you know the outcome not being high enough, they’ll say, ‘I can always have my client retire later, save more or spend less in retirement.’“

He noted that annuity issuers have a product that can solve for clients’ fear of the investment markets going down.

“Well, for an asset manager, that’s what they believe their job is,“ Lau said.

He said that annuity issuers need to show asset managers why it could make sense to move part of a client’s portfolio into an annuity.

It’s possible that Richter-Gordon’s income under advisement metric could be a tool for doing that.

Maybe posting clients’ and asset managers’ IUM alongside their AUM could increase advisors’ level of interest in income flow.

Here are some other ideas for measures could channel the healing powers of sunlight into retirement savers’ anxious murk:

Nest egg integrity: The odds a dollar that a client puts in a retirement savings arrangement will stay there until the client retires.

Client success ratio: The percentage of a retirement professional’s clients who manage to stick with something resembling the originally recommended plan before and after retirement.

Expectations gap: The difference between what clients think they have and how their retirement planning arrangements end up actually working.

CalPERSation: Adjustments of articles and congressional fulminations about how terrible various retirement system players and vehicles are, based on how often solvency managers for California Public Employees’ Retirement System and other nonprofit retirement programs admit that making it all work turned out how to be harder than it looked.

Allison Bell

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