Magazine article The Journal of Lending & Credit Risk Management

The Retirement Distribution Specialist A New Frontier for Banks

Magazine article The Journal of Lending & Credit Risk Management

The Retirement Distribution Specialist A New Frontier for Banks

Article excerpt

There is good news, courtesy of financial modernization, for banks that have watched deposits slipping away. Expertise in retirement distribution planning can position banks to expand business opportunities, increase value to their customers, expand assets under management, and add new revenue sources.

In the past 30 years, banks have lost nearly 55% of customers' financial assets to securities firms, according to the research firm Gartner Group. With the barriers to this market now lowered through financial modernization, look to compete by seeking opportunities in life insurance, asset management, and annuities. But it has been difficult to make significant headway.

Concurrently, the long bull market, combined with rollovers from 401(k) plans, has made retirement assets--many of which are invested in CDs--the largest assets owned by many Americans. But this more than $10 trillion in retirement wealth in the U.S. today is threatened by a looming tax trap that will devastate the financial legacy of the "graying of America" and baby boomer populations.

I have heard many horror stories from unsuspecting IRA beneficiaries who have been saddled with tax bills exceeding 75% of the asset's value and who have been stripped of the opportunity to allow their inheritance to continue to accumulate on a tax-favored basis.

These errors often occur because the IRA owner never sought professional advice. But in many cases, it's because the advice they received was wrong. And herein lies the real opportunity for bankers.

A new discipline for the financial industry--retirement distribution planning--offers banks a way to regain their share of customers' accounts lost to securities firms over the years. By training bank employees and customer advisors to become retirement distribution specialists, banks can take advantage of the complexities in this critical area of financial planning, convert CDs to assets under management, place life insurance and annuities, and provide additional trust and custodial services to clients in an incredibly lucrative marketplace. Yet, to date, only a handful of custodial institutions have thoroughly integrated changes from the 1986 and 1997 tax laws into their administration systems that allow for multigenerational planning.

Getting It Right by 70 1/2

The problems for owners of retirement assets surface when they reach age 701/2 and their life expectancy elections become irrevocable and retirement distributions must begin. With the phenomenal growth in the investment markets, many retirees have built assets in excess of their lifestyles and emergency needs. To preserve as much of the asset as possible for future generations, they must plan carefully and make wise decisions. Bad advice at this stage of planning can cost clients and their beneficiaries a bundle. Knowledgeable planners can assist their clients in creating a family legacy of growth for up to 70 years.

Path to a Specialty

Retirement assets are very different than other assets in a client's estate. Although they are tax deferred, they do not possess the favorable tax benefits of other assets. First, they are subject to income and estate taxes at death; as a pre-tax asset, they cannot be gifted or transferred to a trust. Also, they do not receive a step-up in cost basis upon death or qualify for the favorable capital gains treatment afforded other forms of investments. …

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