As markets continue to recover and the economy shows signs of stabilization, financial advisors are left to contemplate the new retirement planning landscape. Previous assumptions about asset allocation, diversification and the appropriate levels of risk in portfolios are being challenged.

According to the Employee Benefit Research Institute, 40% of people between 56 and 65 had more than 70% of their 401(k)s invested in stocks at the beginning of 2008. Even more disconcerting, almost 25% had 90% or more in stocks. Clearly there is a big opportunity for advisors to help people get their retirement plans back on track.

As part of On Wall Street's Second Annual Branch Manager of the Year Awards, sponsored by MainStay Investments, we interviewed some of the nation's leading branch managers on the issue of retirement planning. In the wake of this historic market episode, some key themes have emerged.

According to branch managers we spoke to, financial advisors need to take a hard look at how they are managing their clients' retirement portfolios, and realize that their unrealistic optimism may have put client assets at risk.

Indeed, in some cases, advisors may need to start from scratch. Sixty-one percent of branch managers in our survey say that advisors must redevelop their clients' entire financial plan/strategy to meet individual client needs.

As one top branch manager put it: "Advisors are going to have strong conversations with clients now and realize that some of the plans, if not all of the plans that have been laid out for retirement and long-term financial goals, probably need to be restarted."

Overly Aggressive Advisors

The branch managers we surveyed said that the biggest mistake advisors make when planning their clients' retirement strategies is being too aggressive with income distributions and not using sound estimates for expected returns. Most experts agree that a 4% withdrawal rate is prudent, but depending on individual circumstances, this may vary.

Many branch managers recommend using the latest state-of-the-art retirement planning tools and calculators to help revise return estimates and distribution rates. Some firms are providing these to advisors, but for those firms that do not, branch managers say it's worth the investment. These new tools have provisions that account for catastrophic events or market conditions, so advisors can see what can happen to a client's portfolio in the event of an emergency or a market downturn, and plan accordingly.

Accepting the New Reality

One positive development that has come out of the financial crisis is that clients are willing to be more realistic about returns. Two years ago, if you told clients they'd be getting a 2% return on their investments, they would have been disappointed. But when you compare that 2% return to the double-digit losses that individuals experienced last year, it doesn't seem so bad.

In addition, branch managers say that since clients are now being more realistic about the situation, they are willing to make sacrifices to get their retirement plans back on track.

Developing a Customized Approach

Of course, the best advisors know that retirement planning is not a one-size-fits-all solution. Age, financial circumstances, work status and expected lifestyle in retirement all need to be carefully considered.

While younger clients may be concerned about the sudden dip in their 401(k) or the impact that inflation will have on their retirement, clients near, or in, retirement need to know how their current lifestyle is being impacted. The bottom line is that the market downturn affected everyone differently based on their level of personal wealth.

Top branch managers recommend taking an individual approach with each client. "Advisors need to truly understand the client's goals, objectives, fears and needs. Have that personal relationship, deeper than just an asset manager," said one manager.

Getting Clients Back on Track

With customers in the right mindset to receive retirement advice, now is the perfect time to sit down with them and review-or maybe even restructure-their retirement plans. The following are a few suggestions to help ensure retirement needs are met:

• Identify the Shortfall: The recent market volatility may have had a large impact on many clients' overall retirement strategy. Work with your clients to complete an assessment of their existing assets. Be sure to identify all potential sources of income, including pensions, Social Security, 401(k), personal savings, etc. Then, carefully review anticipated basic expenses and discretionary spending in retirement. This will help you identify the potential shortfall and determine the next course of action.