The New ROI


Business schools still teach ROI, I’m sure. For most Americans, unfortunately, it might be the wrong ROI. 

Business schools are probably stuck on return on investment, and I can argue that many financial planners are still talking to their clients about return on investment. However, I say the new ROI is Reliability Of Income. For most retirees, the need for a steady, dependable, lifetime income continues to grow in importance. 

So many planners and schools focus on the returns of a portfolio. In reality, the changes in return from 5 percent to 6 percent, for example, have a nominal difference on the retiree’s income outcome. Now, the sequencing of those returns, especially early in retirement, may have a larger effect on the outcome. But overall averages will not impact the success or failure of a retirement plan. Instead, the larger impact comes from life expectancy, which is a variable we cannot predict.  

Therefore, clients need to have a guaranteed, inflation-adjusted floor of dependable income in their portfolio. Without it, the success of their retirement portfolio can’t be projected accurately. Too many variables – like return on investments, life expectancy, sequencing of returns, health care costs and emergencies – could impact the probability of success.  

By focusing on the reliability of their income, clients can reduce the risks in their retirement portfolio. Inflation can be mitigated with cost-of-living increases. Longevity can be eliminated with lifetime income options – both single and joint. Fee and tax drag can be greatly reduced, if not eliminated, by proper choice of product. 

Bottom Line: Put first things first when designing a portfolio – reliability of income should be the new ROI. 


ROI Investment

How Will You Be Remembered?


I love good sports stories and analogies, as well as strange facts and figures from the sports world. So of course I enjoyed an article from USA Today Sports that listed 101 little-known sports facts. One that jumped out at me? Bill Buckner has more hits than Ted Williams. Unfortunately, most people remember Bill Buckner for one error than they do for all his achievements at the plate. 

This made me think about our business and our relationships, not only our clients but also their beneficiaries. Do you want to be remembered for the one error you might have committed in the planning process? Or, will you be remembered for all the great years of returns you provided your client during their working years? You can accumulate a lot of money for your clients over their earning years, but if you fail to plan for their lifetime income, your legacy to their family will be dramatically different.  

Watching their parents, kids see firsthand what their retirement lifestyle could be with you as an advisor. With a flawed history, your chances of managing the next generation’s assets become slim to zero. If you haven’t addressed their parents’ longevity or health care concerns, they likely won’t want to have the same experience. If you haven’t taken care of their parents, why would they want you to take care of them? 

At the end of the day, we can manage assets and build wealth all day long. We can outgain the money manager across the street or beat the market indexes. But, if we commit an error in not addressing predictable, guaranteed, inflation-adjusted income to our client; we will be remembered for our one error versus all the years of outperforming the market. 

Bottom Line: Don’t let one error define your legacy for generations to come. 


Lessons Learned … Again


In November 2014, I wrote about a short correction in the market. Over a period of 22 trading days in the fourth quarter of 2014, the market corrected and wiped out over $1 trillion of wealth. Clients never really felt that loss, however, because it came and rebounded before the next quarterly statement. Once again, we’re witnessing wild market swings with many clients concerned about their retirement savings fueled further by instant news and financial news outlets.  

From Aug. 17-24, we’ve seen global economic concerns impact the financial markets severely. During times of market volatility, it’s important to remember the fundamentals of financial planning and to deliver on those fundamentals through the planning process. While no planning process fully insulates you from market fluctuations, long-standing principles used in previous volatile markets can provide insights – some that have worked and some that continue to be refined. I want to offer a refresher on some of these basic principles and add some insight from what we’ve learned works best in all markets.   

Product allocation before asset allocation (i.e. focus on what’s really important to each client): In the past, we’ve focused on building a portfolio based on negative correlations and asset classes that don’t always move in the same direction. Math and science point to product allocation being just as important, if not more important. Not all products were built to accomplish the same purpose, so it’s necessary to build a portfolio of products that meet the client’s needs before we focus on asset allocation.  

Start with securing income: When using a variety of products to solve client needs, you should discuss the need for a secure retirement income. A client exponentially enjoys their retirement when they’re meeting their essential expenses and adding an inflation hedge. Secure income can come in many forms; however, planners must look at various sources that minimize the amount of capital needed to secure it.  Essential expenses should be met with dependable income streams. The liquidity-free capital can be used for other goals and desires.  

Mitigate longevity risks: Longevity is a multiplier for all risks in retirement. Statistically, the risks of asset allocation, health care costs, and long-term care costs grow when longevity is not addressed. Positioning the proper amount of assets in the proper vehicles to mitigate longevity allows a client to minimize all other risks to proper levels. Thus, the rest of the financial plan may be met with more reasonable assumptions and expectations.  

Address legacy goals: Making sure other risks, like disability and death, are addressed creates security that the family’s goals and objectives are will be met in the short term and long term. A financial plan without these elements is doomed. More importantly, cash value life insurance can provide a resource to supplement retirement income during market volatility, which is when you least want to withdraw assets from your investments.  

Evaluate tax efficiency and fee drag: When choosing financial solutions, it’s important to consider the impact of taxation, especially on income-generating vehicles. It’s not what you earn; it’s what you keep.  With the ever-changing and more complex financial solutions, many financial plans include expensive riders. As we enter a fiduciary role for all our transactions, fee drag and tax consequences must be considerations that we evaluate in our solutions.  

Bottom Line: Today more than ever, Americans need strong financial advice. During times of financial extremes – both up and down – it’s important to stay fundamentally strong. I challenge you to take a look at your financial plans. Evaluate how close you are to the fundamentals.

If you’ve strayed, my guess is that you have some anxious clients. If you’ve remained fundamentally strong through the six-year bull market, my guess is that you’re earning your clients’ trust during these volatile markets. 


The Real Retirement Fears


I think baby boomers are starting to get the message (at least at the conceptual level) of the need and costs of addressing longevity in retirement. Just watch 60 minutes of primetime network TV – you’ll see green lines, orange money, falling dominoes and some scolding from Tommy Lee Jones. See, you know exactly what I am talking about without me even mentioning the sponsors of those commercials. 

If retirement planning were only that simple …

If longevity was the only risk to going broke in retirement, your job would be easy. But it’s not. Effective retirement planning requires getting inside your clients’ heads and hearts and learning their fears and concerns about what could cause them to run out of money. 

The recently released AICPA CPA Personal Financial Planning Trend Survey has identified reasons why clients fear going broke (a relative term) in retirement.

The nuggets in this survey are the unexpected events clients were concerned about facing.

In addition to longevity, the concerns that fueled the fear of going broke in retirement include:

  • Health care costs
  • Withdrawal rates
  • Market fluctuations
  • Lifestyle expenses
  • Long-term care expenses
  • Caring for aging relatives
  • Job loss
  • Adult children returning home

As a financial professional, one the biggest challenges you face helping clients articulate and identify their individual retirement concerns. Might I suggest using the above list to jumpstart the conversation?

The Bottom Line: In order to address your clients’ retirement worries, you have to dig deeper than the numbers. Find out what potentially troubling events concern them most – then find solutions to help calm their fears.  



Top of the Mountain


Standing at the edge of Erickson Bowl, elevation 12,480, in Keystone, Colorado, I was in awe. As I looked out on the summit at Keystone Peak, searching for a line to being my descent down the snow-covered mountain, the sunlight was blinding. I noticed the fresh smell of minty pine, and the view of pristine blue skies and crystal white snow took my breath away.

This is was a place of tranquility, but the atmosphere shifted quickly and the piercing cold wind was a shock to my face. I’d made the steep journey to the summit, but I stood there frightened about the possibilities of the suicide mission to return. 

As I flew down at 60 miles an hour, I had to trust my equipment, my knowledge of the terrain and my technical skills. I veered right and left, avoiding trees and boulders that could potentially kill me in a second. It was a thrill, but a very risky thrill, and I couldn’t have done it without preparation. 

Right now, your clients are at the mountaintop of a six-year bull market, and volatility has returned. They may feel uncertain and unprepared for the potential risks they face – inflation, health care and outliving their money. Do you know how to guide them through the terrain to safety? 

The Bottom Line: You can enjoy the view from the top … but eventually, you’ll have to head back down from the summit. Ash Brokerage can help you mitigate risks and successfully navigate the retirement mountain. We’ll educate you on latest strategies and solutions to help maximize lifetime income while keeping your clients’ nest eggs intact.