Sheryl O’Connor; Philip Lubinski, CFP; and Tom O’Connor founded WealthConductor LLC in 2017. IncomeConductor, the company’s flagship platform, allows financial advisors to build customized retirement income plans for clients and manage them efficiently throughout their clients’ retirement. Rethinking65 caught up with them recently to get an overview of how IncomeConductor can help build retirement income plans.
Rethinking65: Why is retirement income planning important for advisors to address with clients?
Sheryl: These are unprecedented times. Millions of baby boomers are retiring, and more will continue to retire in the coming years, and they just want to know if they will have enough to live on and can enjoy retirement. Baby boomers are projected to have 80% of the wealth in the U.S. by 2029. This is the largest opportunity in the history of the financial services industry.
At the same time, most people retiring now don’t have pensions and must rely on their savings to generate income in a low interest-rate environment. And people are living longer and need strategies that will succeed across multiple market cycles.
Rethinking65: A lot of advisors have relied on the 4 Percent Rule and Monte Carlo to develop income plans for clients. How is IncomeConductor different?
Phil: The 4 percent rule, developed in the mid-90’s, is outdated. It’s based on set assumptions, such as a 30-year life expectancy and a linear spending pattern. Monte Carlo is a great tool for the advisor to prove they communicated risk to the client, but probability planning is not what retirees are looking for. They want a comprehensive written plan that makes sense to them and can be easily monitored. IncomeConductor provides that written plan giving them permission to spend, and they like that. Because the platform is not based on random simulations or past performance models, IncomeConductor lets an advisor offer a much more reliable picture of how goals can be achieved.
The big difference with IncomeConductor is that it is based on a strategy called time segmentation, which is a specific form of bucketing a retiree’s assets. We create separate portfolios for different time horizons in a retiree’s life that are invested based on their income needs for a specific portion of retirement. Segmentation is also the best way to manage risk by avoiding sequence-of-returns risk, minimizing the loss-of-principal risk, and thus managing client behavioral risk.
Rethinking65: Can you explain in a little more detail how the platform uses time segments to build an income plan?
Tom: Creating an income plan by using multiple segments with discreet time horizons is a lot more transparent and understandable for clients. They see exactly what income will be delivered each year and from which accounts. And plans broken down like this are much more manageable over long retirement periods. IncomeConductor allows the advisor and client to decide how many segments of time their plan will be broken into and how long those segments will be invested — usually based on how many years to a particular goal — before distributions from that bucket are needed.
The first segment provides income immediately to cover the client’s living expenses over the first few years of retirement and does not have any stock market risk. Segment 2 might have a five-year hold and require less of her savings to be invested because by the time it’s needed for income, she is receiving Social Security payments. Income that comes from Segment 3, with a 10-year hold, might be needed when the client expects to stop taking expensive trips and stay home more. Later segments that are held for 20 or more years might need to deliver more income when she’s 85 and could need long-term care.
Rethinking65: How does IncomeConductor deal with different income streams?
Phil: An advisor can put together a plan that shows a client what their total monthly gross and net income will be each year over the life of the plan, which may be 30 years or more considering people are living longer. In addition to income generated by investments, the advisor can enter income coming in from other sources, such as Social Security, pensions, part-time work, and so on, based on various start years. An advisor can get a very accurate projection of income over time because growth of those income streams and tax rates are also built into the picture. Great color-coded visuals show how cash flow changes over time because of those income streams.
Plans can be created in a few minutes live in front of the client, which is great for webinar meetings. Since new information and changes to assumptions can easily be added and IncomeConductor dynamically shows the impact of that data on the plan, clients are fully engaged. Let’s say a client is not saving at the rate the advisor hoped … they can immediately see that their income starts failing in the last few years of the plan. A retirement readiness report outlines the deficit in dollars and provides several options to eliminate that deficit. This is really a new way of doing planning – clients love it and it creates a real sense of partnership with their advisor.
Tom: Another nice feature is our Approved Plan Report, which outlines the roles and responsibilities of the advisor and the client and includes a client signoff giving the advisor documented approval to implement their plan. When the advisor is ready to connect the client’s accounts, IncomeConductor can aggregate the data and use any investments chosen to fund particular segments. There’s daily tracking and we have relationships with many custodians, platforms and other softwares. We can pull in information from any institution, including 401(k) plans.
Segments can be funded with one or more accounts, using the entire account or even single securities or portfolios within an account. When the plan starts delivering income, the client can see how each segment of their plan is performing and whether it’s on track to deliver the income they want. IncomeConductor is always tracking the rate of return that is required to reach each segment’s goal and sends email insights to the advisor when opportunities arise to “de-risk’’ the client’s investments to protect income. Advisors can quickly share updates with clients with one-click reports 365 days of the year, and the client approves any changes to the plan.
Rethinking65: How has COVID-19 impacted the income plans of clients?
Sheryl: No one could see COVID-19 coming. Early on during the pandemic, using IncomeConductor, advisors were able to show their clients that their near-term income wasn’t hurt by the market volatility. And the investments that were most impacted they wouldn’t need for income until many years from now. It helped reassure clients, as well as advisors, and kept them from making decisions based purely on emotions that might hurt their income plan. As the market rebounded, clients could see those investments appreciate and get back on track.
Rethinking65: Does IncomeConductor work just as well for a married couple as it does for an individual?
Sheryl: Yes, because with a couple it allows the advisor to attribute each stream of income to a particular individual. It’s a lot easier to make adjustments to the plan when income streams are assigned to one person in a couple rather than looking at the couple as one unit. For example, individuals may be retiring at different times, have different Medicare policies, or claiming Social Security at different ages.
Rethinking65: Why do advisors say they like IncomeConductor’s approach?
Phil: The main reason is because clients love it. The idea of retiring, figuring out their personal goals, and how they won’t run out of money can be overwhelming and very stressful. By providing a customized written income plan, IncomeConductor shows clients how they can relax and not fear the future, while at the same time continue to achieve goals. It gives them a more optimistic and positive view about the second half of their lives. Because the platform is so flexible, when life changes unexpectedly their plan can be updated easily. Daily tracking with automated insights help protect their income so they don’t have to give up growth that comes from the markets. The flexibility also means the platform works for clients at any asset level, whether they’ve saved $200,000 or $20 million.
Advisors love it because IncomeConductor helps them clearly illustrate some very complex financial concepts to their clients in a very understandable way. Advisors also like the fact they can easily link and sync account data from any source which makes their businesses more efficient and compliant. Each day IncomeConductor is recalculating the status of each client’s plan and the advisor can provide up-to-date reports to the clients.
Sheryl: Because we want to help our advisors become retirement income specialists, we also provide training and monthly advisor study groups on changing trends and industry practices, often presented by experts in these subjects. Plus we’ve built compliance into the technology and process that support fiduciary standards. Because of our focus on compliance, we are the only software of our kind where E&O insurance carriers provide premium discounts to firms that use IncomeConductor.
Rethinking65: Who are your advisor clients?
Sheryl: IncomeConductor is used by advisors at more than 80 broker-dealer and RIA firms throughout the U.S., Canada and Australia, and we continue to increase the number of firms that have reviewed and approved the use of IncomeConductor by their advisors. It’s been tough for advisors to compete over the past decade as more robo platforms attract working investors and the cost of products and services have decreased and become more competitive through the use of technology. We feel that having a financial professional help clients create and manage their retirement income plans is critical and that this is one demographic where their services are still badly needed. It’s really creating a whole new value proposition for advisors while helping millions of retirees achieve a financially secure and happy retirement.
IncomeConductor offers free 30-day trials. Contact [email protected] for more information.