From the December 2007 issue of Boomer Market Advisor • Subscribe!

December 1, 2007

Forward thinking five

What's ahead for 2008 and beyond, specifically for baby boomers and the advisor business? Global conflict, the subprime mess and recent fallout at leading financial institutions all add up to uncertainty in the new year -- far more than in 2007. Does recession loom, or is it much ado about nothing?

Once again, Boomer Market Advisor asked five industry giants for their predictions for the new year. All were chosen for their creativity, enthusiasm and forward-thinking agendas to address boomer retirement concerns. Some names you'll recognize, some you won't, but all provide critical insight as to how to best position your clients in the weeks and months ahead.

The Competitor
Larry Roth

Larry Roth started with AIG Advisors Group in January 2006 as CEO of Royal Alliance. A little over a year later, he was promoted to the top spot of the insurance behemoth's broker/dealer network. It's safe to say AIG feels they made a good hire.

"I'm a competitive person," Roth understates. "And this is a competitive company, so we're aligned to win."

From a retention and revenue standpoint, Roth boasts that 2007 is on track to be the network's best year ever.

"Same store sales, which are one way we measure it, have been the strongest we've seen," he says.

But hasn't it been a tough recruiting year industry-wide?

"People are happy where they are right now. As a result we're getting very strong business from our existing advisors. We have a 98 percent retention rate based on revenue. People are happy and it's reflected in the net impact to our broker/dealers."

As for the future, Roth points to open-architecture as the near-term industry focus -- not much of a surprise. What is a surprise is the way Roth thinks about open architecture's role.

"Part of our reorganization was undertaken in order to redefine open architecture as we know it. We believe it's time to provide a new standard of technology and education in our back office in order to meet the needs of advisors and clients both today and tomorrow. That may sound like motherhood and apple pie, but we've got to think about what our current clients will need at least 10 years out."

The result, says Roth, is a heavy focus on helping reps design their business in the most effective way possible to serve client needs, while helping the reps become true small business owners as opposed to sales people.

"Open architecture, defined in this way (as opposed to simply offering a wide variety of product) is the wave of the future."

The Builder
John Murphy

John Murphy describes himself as a "builder of businesses and an entrepreneur, albeit with a lower case 'e.'"

"I'll never be one of these guys sitting around in a garage brainstorming ideas, but I like to think of myself as entrepreneur with money behind me. "

The description is dead on. He began his career with Arthur Andersen before becoming one of the eight original founders of Liberty Financial Companies, where he spent 16 years before leaving to start Mass Mutual's institutional business. After building it up, he took over Mass Mutual's defined benefit and defined contribution division before moving on to head OppenheimerFunds (which is owned by Mass Mutual).

In addition to his role as chairman and CEO of the mutual fund giant, he's the current chairman of the Investment Company Institute.

"We've seen a great deal of attention given to boomer retirement in 2007, and that will continue in 2008. We've positioned ourselves well with the retirement income planning tools we offer, such as our RIM 2.0 software."

Murphy says the company has a heavy focus on what it calls Transition 10 -- the five years before and five years immediately after retirement begins.

"We've done quite a bit with target date funds and with other fund-of-funds that are based on lifestyle needs."

Switching to his role with ICI, Murphy says the organization will continue to ensure the industry puts the needs of needs of shareholders first. To that end, it recently created a retirement security task force.

As for other 2008 initiatives, "We'd like to see capital gains and dividend rates stay where they are. We believe the Bush tax cuts have helped investors and we believe they should not be repealed. As far as 12b-1 fees are concerned, it will go a long way if we just call them what they are, which are a fee for advice. They give people access to professional services that they could not otherwise afford. I don't think it will help anyone if we completely do away with them. "

The Innovator
Brian Shea

"You may have noticed our tag line, 'Is your business without limits?" Brian Shea asks. "It's a fundamental shift in the paradigm for us. We want to completely redefine the clearing and custodial relationship with our customers."

Redefining traditionally held relationships is a central theme among this year's Forward Thinking Five, and Shea, president and COO of Pershing LLC. is no exception. He was first profiled in Boomer Market Advisor in our July 2006 broker/dealer special issue, and at that time he needed little introduction. It's not only his 24 years in the business that makes him instantly recognizable, but his status as a true industry leader. So much so that in the wake of the mutual fund scandals that rocked the industry in 2004, NASD (now FINRA) called on his expertise in their effort to make substantive changes, and Shea was appointed to the SRO's mutual fund task force.

This dedication to the good of the industry translates company-wide.

"We have 200 executives sitting on 300 industry committees," he says.

After listing some of the company's initiative for 2008, we're left wondering how any of them have the extra time.

"We recently launched iNautix U.S. to deliver advanced technology solutions to our customers," he says. "Also, managed accounts our huge in our industry and we'll continue to be a leader through Lockwood with Pershing Managed Account Solutions.

"We are more opportunity driven than threat driven," Shea continues, "and we see a huge opportunity in the aging boomer population. We believe that automating the IRA rollover process will be increasingly critical. Also, HSAs are not the most profitable line of business for advisors, but they must offer them going forward in order to address a client's comprehensive financial plan. Trust services will be increasingly in demand and we have two institutions we're working with on that front."

The Advisor
Alexandra Armstrong

If you ask Alexandra Armstrong for predictions for 2008, she gets very specific. It's this attention to detail that got Armstrong, ranked among the top 100 financial advisors in the country by Barron's and The Winner's Circle . The chairman of Washington, D.C.- based Armstrong, Fleming & Moore has been in the investment field for over 40 years, and in 1977 she was the first person certified as a financial planner in Washington, D.C. She served for seven years on the Board of the International Association for Financial Planning, retiring as Chairman in 1987. She also served as chairman of the Foundation for Financial Planning in 2000.

"One of the most likely predictions will be higher taxes," she says. We might not get [Congressman] Charlie Rangel's exact bill, but we'll get a variation of it. "

Like many advisors, Armstrong is also taking a second look at the benefits of annuities.

"I've been a financial planner for a long time, and I've never touched annuities. But with the new guarantees and living benefit option, I'm looking at them now."

Somewhat related, Armstrong believes that the number of people choosing at active retirement community will increase significantly.

"It used to be that no one wanted to go to them. But now retirement communities are getting nicer and nicer; they're almost like clubs. This should be factored into their plan."

She also says more clients are looking at what they get from investment managers, and believes they will demand more.

"Consumers want total financial advice; more than just the returns. A big trend will be investment advisors getting into the comprehensive planning space. Client's will demand it for the fees they're paying."

Lastly, she believes personal money managers will become more prevalent, especially as boomer women age.

"They'll pay bills, organize clutter, help them deal with paperwork. It will be like the current family office structure but it will come down-market and be available for lower incomes."

The Advocate
Michael Bell

We continually describe Curian Capital as an "upstart" in the separately managed account industry, but the term is no longer accurate. A perennial favorite in our annual Readers' Choice survey, the Denver-based firm has now positioned itself solidly as a leader in the asset management space. This is due in large part to the leadership of CEO Michael Bell, a lawyer by trade who was the firm's chief legal officer before taking over the top spot in 2005. It might be his background in the legal profession that makes him unafraid to take on all-comers when debating the direction and importance of the industry (witness his response to SMA pioneer Len Reinhart in our October 2007 issue). So what's ahead for the near-future?

"The asset management business has been very good at focusing on accumulation vehicles, but hasn't done a good job on the retirement distribution side," Bell says. "But now the retirement wave is coming over the wall, and the focus will change very quickly."

Traditionally, says Bell, clients looked to annuities, reallocated to larger fixed income positions or used a laddered approach to getting their required protection and income. To capitalize on boomer longevity and income needs, managed account firms are responding by marrying asset management with insurance into a new hybrid product. Financial insurance, as Bell coins it.

"The market is ripe for it, and many of the larger firms are looking at this now. The key player s will be the firms that can package these hybrids and get them to the street in the next 12 to 18 months. The timing is critical, and if it can be done in that time frame, it will be those companies that dominate. "

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