The transition from an accumulation portfolio where the worker is making contributions to his or her retirement investments, and a distribution portfolio where the portfolio is used to meet the retiree’s need for income, is likely to limit the growth of the portfolio and may result in declining portfolio balances over time. Seniors who never touch principal won’t have this problem, but for others it will be an economic reality.
Financial advisers are often paid investment fees based on an assets under management (AUM) model, where the client pays a percentage of the retirement portfolio’s valuation for the adviser’s services. The adviser may have account minimums for accepting new clients or retaining existing clients. The question that seniors who compensate their adviser on an AUM basis will want to ask their financial adviser is: “What happens when my portfolio balance falls below your account minimums?”
Anna Prior’s recent column, “The Challenge of Aging Clients’ Shrinking Assets” in The Wall Street Journal’s Wealth Adviser column discusses this issue. In it, she chronicles several financial advisers who stuck by their clients, even after it stopped making economic sense, because it was the right thing to do.
Changing the compensation model to something other than something based on assets under management like charging an hourly fee for services can work. So can changing the level of service provided to the client by the firm.
The point is, you should have this discussion with your adviser now, and see how his or her practice works with the senior client to continue to provide financial advice if the retirement portfolio should shrink below the firm’s account minimums for AUM compensation.
How do you pay for your financial advice?
Is your account balance growing or declining in retirement?
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