Monte Carlo simulations project what a client's performance may be in the future based on assumptions of projected returns from different asset classes and projected rates of inflation.
According to AdvisorHub, advisors increasingly are utilizing this tool for marketing to new clients. Typically, a conversation that takes place over time and includes several steps. First, the advisor must gather the data. Second, the advisor must determine what lifestyle the client anticipates in retirement. Third, the advisor asks questions to determine what the client has put aside, and are they confident they can live the kind of lifestyle they want in retirement? Step four includes running the Monte Carlo simulation.
All too often, the client is likely to see a shortfall. That leads to the fifth step. Step five requires the advisor to ask more questions, including can the client work longer to save more. Step six includes asking if the client would consider an alternative if the client had a higher probability of success. In step seven, the advisor will run the Monte Carlo simulation again. The number likely will show a higher probability of success based on the new proposal.
Financial Advisor Transitions consults advisors nationwide to explore employment transition options and to preserve and protect their practice in any transition that they make.
