As we enter an era of retirement planning aptly dubbed "The New Normal," producers are preparing to work with clients who have weathered the past few years conservatively and with a great deal of caution. Yet few insurance advisors would recommend that investors keep their heads in the sand and their investments fallow. Determining how to communicate gingerly with clients and gently encourage them to reallocate funds for both asset protection and growth are just some of the challenges agents say they will face this year.
Mark Hollingsworth admits that, for the past 29 years, he has been managing his clients' emotions much more than their financial affairs. Going into 2011, he is even more committed to that mindset, especially as investors enter what he calls "a new reality."
"I think clients are still in a bunker mentality, and as soon as they are willing to get back into the stock market, I think they are going to expect 10 percent to 12 percent returns," said Hollingsworth, a Pinehurst, NC-based advisor at Raymond James & Associates, and senior vice president of investments. "But we are in a non-leverage world now, and I am going to try and moderate expectations to 5 percent to 8 percent as the norm."
To Hollingsworth, this is a very healthy expectation for investors over the long term. While a decreased ability to leverage and borrow money has certainly shrunk returns in the market, governments, corporations, and individuals have also stopped consuming as much and begun moving into a savings mentality -- a positive in Hollingsworth's mind.
Hollingsworth hopes that he can help his clients - particularly retirees - maintain conservative spending behavior and modulate not only their expectations for returns, but also what they believe they'll need in their later years. Knowing that they will have to live on less is one thing; knowing they can live on less is much more freeing.
Doug Lockwood, a principal at Harbor Lights Financial Group in Manasquan, NJ and a CFP affiliated with LPL, has one word for the economic environment in which we live today: volatility.
"We've taken the stance of working away from static asset allocation and more toward a tactical strategy," he said.
Lockwood, whose firm manages $275 million for 650 families, noted that for the past 10 to 20 years, the firm has been able to allocate client assets into such set areas as cash, bonds, and stock, and to do what he calls a reasonable job without making major changes for the long haul. But with the volatility he now sees in the market and the fact that interest rates are potentially rising, Lockwood said his firm and its clients need to be better prepared to weather what he projects as some nasty storms ahead.
"For starters, your average investor has much more in bonds today than they did in 2008 as a percentage of their total investments," he said. "And when interest rates go up, your traditional bonds tend to go down."
He noted that his conservative clients may have held 60 percent in bonds and 40 percent in stock, and felt very comfortable with that allocation in the recent past. But with interest rates threatening to rise, these clients may need to move that money into stocks, and move it again and again in order to make any decent kind of return -- a notion he knows will likely go against their comfort level.
For Lockwood and his firm, the challenge is how to propose a reallocation like this and pick the right time to introduce it. While he has prepared clients by proactively alerting them through quarterly conference calls that changes to their allocations are on the horizon, he knows that telling them is very different than actually making the move.
While he believes that some clients will be comfortable with the new direction, many more will need steady hand holding, with most reassurance needed in person. He hopes, however, that the longevity of client relationships with the firm will help smooth over the bumpy path that many will feel they are treading.
Many of Laurence Braunstein's clients at Morgan Stanley Smith Barney believed that they had reached a place with their account balances where they could hold steady through retirement.
"But in the past few years, they unfortunately bailed out at the wrong time," said the New York-based financial advisor, who does a lot of business in annuities. "And now they have found that the traditional way of handling their money will not provide them with what they need, and they're scared. That is a sea change for a lot of people."
With an affluent client base whose financial net worth is in the $1 million to $3 million range, Braunstein said many investors believed they were in a place where they could replace their earned income when they had reached this savings level. But, he noted, many have now seen 20 to 40 percent of their asset base disappear and have a new focus on the income they'll need in their Golden Years.
"The $10 million guy is worried about income the same way someone who has $500,000 worries, because they have both converted their life savings," he said. "This is now a focus for me rather than a sidebar to the business."
To that end, Braunstein will begin running educational workshops and seminars on how to achieve income, focusing on variable solutions as one area in the second quarter of 2011.
Brian Greenberg knows that his clients will never be financial experts. That is, after all, why they've hired him. But he does believe that the more informed they are about their investments and the reasons why he's made specific financial decisions for them, the less anxiety they will feel going forward.
"I know I'm not going to completely alleviate their anxiety," said Greenberg, a financial advisor and CPA with Woodbury Financial Services-affiliated Brian C. Greenberg and Associates LLC. "But if I can communicate the protection of their assets, I can help them understand. Communication is paramount."
Take the weekly podcasts Greenberg recently began pushing out to clients. With the number of updates he wanted to give investors, the Marlton, NJ-based advisor felt that quarterly reports were not enough. So, being proactive, he started sending out online events on topics such as Social Security through a service he found via another Woodbury connection called Real Wealth Advisor.
Greenberg believes that with what he calls the near collapse of the financial system in 2008, it is crucial to translate to clients not just what's happening in their own accounts, but what's happening financially in the world around them. And, taking his role as a financial fiduciary very seriously, Greenberg wants to ensure that his clients understand that he is not just paying attention to their funds, but is also available to discuss any other financial matter that may concern them as the years progress.
Cathy Weatherford is the CEO and president of the Insured Retirement Institute. She can be reached at email@example.com or 202-469-3010.
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