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. 


What is the Cost of Income?


Have you ever thought about the true cost of income? Too often, we simply take the current payout percentage and divide that into the required annual income to find a solution. But, are we really helping the client understand the cost of generating income? Or, are we even doing the client justice by simplifying the solution with the hottest income rider?

In reality, clients need to consider many factors as they transition from asset accumulation to asset consumption for the rest of their lives. As advisors, we must create a strategy that provides a minimum level of income the client will not outlive. So many of us stop after completing the simple calculation with an income rider. However, there are other considerations. 

Planning to minimize the tax impact on income received has a collateral effect on other aspects of the income stream. For example, minimizing taxable income can assist with the taxation of Social Security through the compression of the Modified Adjusted Income calculation. Reducing taxation early in retirement may allow for bracket bumping with Roth conversions for qualified assets.  

More importantly, we must deliver income that is adjusted for some level of inflation. Many say inflation is the cruelest tax of all. It is silent, you don’t feel it at any particular time of the year, and it is generally in small increments; but, over time, it will reduce the effect on a retirees buying power. While it is difficult to speculate where inflation will be in 10 or 20 years, there are ways to increase the minimum income level through cost of living increase riders on some products. This should be done on a guaranteed and frequent manner. 

Finally, we must consider the impact of fees on the income stream. Too often, we look at a gross number for income. But, as I’ve said before, it’s not what you earn; it’s what you keep. A 1 percent fee on a portfolio earning 6 percent reduces the return by 17 percent. As we move to a more transparent environment, discussions with clients will become more important. They’re becoming knowledgeable about the impact of fees, so they will look for advisors who will help them keep more of their assets. 

Client demand for advice and solutions will remain high, so there has never been a better time to be in the industry. However, we have to think about our efficiency and effectiveness in helping them generate income. Instead of reaching for the easiest solution available in an income rider, I challenge everyone to look at more options. 

Bottom Line: Taxes, inflation and fees can cost your clients a lot of income. Look deeper for solutions to make the client’s income more efficient and effective during income distribution.



Practice Makes Perfect


My seventh grade son played his first season of middle school basketball this year. To be honest, he didn’t play well and didn’t get as much playing time as he’d hoped. Instead of being discouraged, however, he continued to work hard and practice. 

It’s paid off. He’s improved dramatically over the last month and he’s getting much more playing time with his summer team. It’s a great jumpstart for him because his summer coach will also be his eighth-grade coach next year. 

With the large amount of baby boomers retiring over the next few years, it seems like the financial industry is also starting a new season. Advisors need to be focused on retirement income planning, but it will take a lot of work and practice to stand out in the crowd. 

The Bottom Line: If you want to help your clients win, you’re going to need a good coach. Ash Brokerage can be there to help you train and improve. With hard work and practice, you can be your clients’ go-to resource for retirement income planning. Jumpstart your season with Ash Brokerage on your team.