Price offers new service for retirees

INVESTING

October 24, 1999|By Bill Atkinson

T. ROWE PRICE Associates Inc. has launched a service for investors who are about to retire that some people believe could reshape the face of the company.

Price's new program uses sophisticated computer modeling as well as the firm's financial experts to help retirees determine how much money they can spend without draining their nest egg.

The company has spent millions of dollars developing "Retirement Income Manager," and it believes that the service is far more precise than the competition's. It has even applied for a patent on the technology.

"This is a piece of more powerful artillery," said George A. Roche, chairman and president of the Baltimore-based mutual fund company, which has $157 billion in assets under management. "We believe that it is clearly one of the most powerful financial tools that an individual can have."

The reason behind Price's new service is simple -- the number of people in the United States who are 65 years and older is climbing.

By next year, there will be about 33 million people who are at least 65, and by 2010, there will be about 40 million people, according to the American Association of Retired Persons. In 2030, the number will be an estimated 70 million people.

"What they are doing is really laying the groundwork for the future," said John A. Hall, an analyst at New York-based Prudential Securities Inc. "They are anticipating a market that has not yet arrived, and they are responding with a product to allow them to take advantage of a marketplace that has not been defined."

Almost every brokerage house, bank and mutual fund company offers some sort of financial calculator to help clients figure out how far their money will stretch once they retire. But the estimates can be rough and unreliable.

"This is not just a software disk," said Todd M. Cleary, head of financial planning services at Price. "This is a complex tool. It is a very powerful software engine that is run on a computer at T. Rowe Price."

Typically, when retirees meet with a financial planner, they receive a series of estimates -- average returns in the stock market, average taxes, average rate of inflation and average life expectancy. All of this is designed to help them figure out how long their money will last before they die.

But sometimes averages can be misleading, especially if the stock market plunges like it did in 1973 and 1974.

Price's Retirement Income Manager aims to reduce the margin of error.

Clients who use the service fill out a 29-page "profile," listing the amount of money they have saved, their financial goals, expectations, risk tolerance and the amount of money they believe that they will need each month.

The information is fed into a computer, which runs it through hundreds of possible retirement strategies.

Each strategy is then run through 500 scenarios for possible market performance, ranging from a severe bear market to a robust bull market to periods of high and low inflation.

The result is that clients receive a recommended investment strategy that gives them options on how they should invest their money, how much money they can expect to live on each month, and an idea of the likelihood that their money will last their lifetime.

Price charges $500 for the service, and if a client invests at least $100,000 with the firm, he or she receives an annual review free for life, and has access to retirement specialists for follow-up questions.

The company introduced the product last month, and so far about 1,000 people have filled out questionnaires.

While the company has prided itself on educating investors, its Retirement Income Manager propels the company further into the advice business.

"I think it will move them from educating to advising," Hall said.

Mark Constant, an analyst at Lehman Brothers who follows the company, calls the service a "much more holistic big-picture financial analysis for their customers."

"It is the introduction of advice," he said. "They are not doing it for the $500 fee, they are doing this to attract and retain customers."

Constant said if the company wants to succeed in being a one-stop financial shop, it must take "ownership of customer relations."

"I think this is a core product that companies like them will have to offer their customers," he said.

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