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Connecting Your Clients to the Data


In previous posts (including here and here) we have talked about motivating clients through engagement and education. One hurdle many advisors face, even in an engaging educational process, is connect their clients to the data. This often occurs in two ways:

  • Clients see their account data and understand what the advisor proposes but falter when trying to translate this into their day-to-day experience.
  • Clients struggle to understand their situation and the advisor’s advice within a broader historical market context.

When advisors help clients connect to the data, both historically and in their daily context, they will deepen the client’s understanding and instill confidence to move forward. What’s more, helping clients connect to the data is an important aspect of fiduciary education.

Connection to Daily Life

To frame this problem simply, many clients struggle to translate advisor advice into their daily life. Let’s look at an example. You are meeting with a client who is enrolled in a 401(k) plan and currently contributing 6%. They have a projected shortfall that begins later in retirement. You have crunched the numbers and realize that if your client can increase their plan contribution to 9% they can cover the shortfall. So you explain the current situation, show the shortfall and give your advice that they increase their contribution to 9% to fully fund their retirement. Easy to understand, right?

While on the surface, this seems like it has been clearly explained, the advisor has failed to answer the one question their client is thinking “Can I afford this increase in contribution?” Many advisors forget that talking percentages can be a pretty abstract concept for many people. What the client wants to know is if they increase their contributions, how will it affect their take-home pay? How will it affect the family budget? The advisor has failed to connect the data to the client’s daily experience and so there is a roadblock to the client taking action.

Connection to Historical Context

Many clients have difficulty appreciating their situation within the broader historical context. Emotion affects many people’s investment decisions and can make it difficult to evaluate an advisor’s suggestions objectively. I’m sure many readers have clients who were burned in the market downturn in 2008 who still invest more conservatively than they might. On the other end of the spectrum are those who expect this current bull market to last forever. As of this writing the Dow Jones Industrial Average is over 22,000. Some clients, seeing their portfolio making leaps and bounds may be tempted to think this will last forever.

Advisors know that markets have historically had ups and downs and what one does during a bull or bear market can have big consequences. When it comes to retirement distributions, one of the prime examples is sequence of returns risk on a portfolio. Taking distributions during a series of poor market returns early in retirement can have a big impact on retirement security. Many clients will not be able to understand such concepts without the advisor’s help.

Fiduciary Implications

The DOL Rule, as it currently stands, does have something to say about this type of client education. When advisors provide this type of education interactively with clients it may not constitute a “recommendation” and may more clearly fall under “Investment Education” (29 CFR 2510.3(21)(b)(2)(iv)). Section A of Investment Education discusses “plan information” and how communicating the advantages and disadvantages of increasing plan contributions and their effect might be regarded as investment education rather than a recommendation. Section D discusses the use of “interactive investment materials”, including software, to meet the standards of investment education by providing retirement analysis based on historical rates of return. Providing sound, transparent education is a great way to serve your client’s best interests.

Helpful Solutions

If you are looking for practical solutions to help you connect your clients to the data then Retire Ready Solutions can help with several tools built into The Retirement Analysis Kit (TRAK), our innovative retirement planning software. TRAK’s Paycheck Calculator can quickly and clearly illustrate how increased contributions will affect a client’s after-tax income. And because the Paycheck calculator can match a client’s work pay stub, often down to the penny, it really grabs their attention and helps answer their unspoken questions.

To help clients understand the vagaries of the market and how their accounts fit into a historical context, TRAK has the Sequence of Returns calculator. This calculator uses a historical index, or blend of indexes, to illustrate to a client their historical probability of a successfully funded retirement.

Interested in simplifying your retirement education process? See the difference TRAK can make with a free trial!

This entry was posted in Fiduciary Rule, Analysis by Edward Dressel

With a long history of working with corporate accounts of all sizes RetireReady Solutions will draw on our experience to help your advisors increase their sales through client education.

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