From the December 2009 issue of Boomer Market Advisor • Subscribe!

The 2010 Forward Thinking 5

What's ahead for 2010 and beyond, specifically for baby boomers and the advisor business? The market meltdown, a fledgling administration and global tension add up to uncertainty in the new year - far more than in 2009. But is the March low the real deal, or just another false positive? Once again, Boomer Market Advisor asked five industry giants for their predications. All were chosen for their creativity, enthusiasm and forward thinking agendas to address boomer retirement concerns.

Kim Wright-Violoch
President, Schwab Charitable

Ask Kim Wright-Violich for predictions and she gets specific (cocky is more like it). But it's not as if the president of Schwab Charitable doesn't have reason. Her predictions for what was to happen in the charitable giving space last year were spot on. It's one of the reasons we named her to the FT5 this year.
"What I'm worried about is that you only get one shot at a hole-in-one like that," she jokes. "How could I possibly top it?"

Point taken. But her insight and influence with charitable giving vehicles makes her a perfect fit to address the legacy concerns boomer advisors have in the wake of the meltdown.

Overall charitable giving - Total charitable giving for 2009 will be just under $300 billion and down 2 percent to 3 percent from 2008. Contributions to private foundations and donor advised funds will fare better and will be flat or up slightly. In 2010, total giving will up 3 percent adjusted for inflation.

Impact of taxes on charitable giving - You don't give to charity to get a tax deduction, but the fact that you can reduce your taxes does increase the number of people who give and the size of their gifts.

Who gains/who loses? - International giving will continue. Giving to the environment did suffer some as donors focused on other causes in 2008. Religious giving is the largest area of giving and should remain the least volatile. It's interesting that giving to religion was up 5.5 percent in 2008, but only 7 percent for the period 2004-2008. Perhaps the recession brought people back to their houses of worship.

Positive developments for investment advisors - Investment advisors will see increasing opportunities to manage clients' charitable accounts much in the same way they manage their investment accounts, and clients will increasingly turn to advisors for help in this area.

Peter Schiff
President and Chief Global Strategist, Euro Pacific Capital

We highly recommend you take a look back at The Daily Show with Jon Stewart interview with Peter Schiff which aired last June. It's a devastating critique of the smug CNBC hosts, Ben Stein and others who airily dismissed the president of Euro Pacific Capital's warnings of global financial doom. It certainly caught our attention.

Economic recovery - A recovery is not coming, whether it's V-shaped, U-shaped or whatever. You're going to get some quarters of positive GDP growth. But from 1933 to 1937 we had strong GDP growth, and it was still the Great Depression. I think we're still early in what's going to be considered the Greater Depression.

The dollar - The most important thing for investors to understand is the grave risk to the U.S. dollar. People need to divest themselves of U.S. dollar assets. If they fail to do so they will see a substantial decline in the value of those holdings and thus their standard of living. People need to look abroad to foreign currencies, precious metals, foreign stocks.

The stimulus - The housing bubble was a direct consequence of government stimulus. If you think government stimulus is a good thing, then you have to think that the housing bubble was a good thing. The recession that hit us in 2007 was the pay back for the stimulus of the prior several years. Now we've rushed to the aid of the economy with the same combination of fiscal and monetary policies, only bigger.

Where to invest - Look to the Asian markets, emerging markets and BRIC-type countries. You've got billions of people around the world that will suddenly start to consume. That's going to put a lot of upward pressure on commodity prices worldwide, agriculture commodities, energy and minerals. Invest in countries and companies that will benefit from a bull market in those resources, like Australia, Norway and Canada.

Dan Ariely
Professor of Behavioral Economics at Duke University

We refer to Dan Ariely as the academic. "Heir-apparent" is probably better suited. He works so closely with Daniel Kahneman, the 2002 Nobel Prize winner for his work with behavioral economics, that Ariely refers to him as Danny.

"I see myself as a student of Danny's, and either as a son or grandson, depending on how he decides to look at it."

Currently focusing on financial health, financial reasoning and health care, Ariely is taking Kahneman's groundbreaking research to the next level, something that's critical given consumer behavior in reaction to the latest meltdown.

Our tolerance for risk - As we move into new technology we create conditions for new irrationalities to emerge. Think about text messaging while driving. What a stupid thing to do. Nevertheless, a lot of people do this. It's the immediacy of the present over the future. The introduction of text messaging has basically created a new type of way in which irrationality can kill us. The stock market is the same thing. As we invent new technologies, all of a sudden we create new places for important irrationalities to emerge.

Regulation as a way to control irrational behavior - Think of something like conflict of interest. Can you get people to truly see their conflict of interest? I think not.
We need a judge or some sort of mediation to point that out. Are we going to find one solution to fix all rationalities? I think the answer clearly is no. So, what we need to think about is a range of approaches and throw all of them in. There are many ways to be irrational, and many solutions are needed to deal with them.

Advisors' susceptibility to irrational behavior - Imagine that you have two approaches. One will make your client less distressed and one will put them in a better financial situation. If they're unhappy they'll leave you. So the advisor has an incentive to make people feel good. If advisors are focusing on the happiness of their clients rather than their financial viability, it won't be optimal advice. They'll try to
optimize the client's happiness, and as a consequence fall victim to irrationality themselves.

Bill Losey
Financial Advisor, Author and CNBC commentator

We wonder when Bill Losey sleeps. The advisor, CNBC commentator, author of Retire in a Weekend, business and marketing coach and producer of a weekly e-mail newsletter called Retirement Intelligence (with 7,000 subscribers) had a few minutes for us - but just a few.

The markets - We are going to see the markets move forward through June. However, it would not surprise me if we end up flat in 2010. We're seeing signs of expansion in manufacturing, some slight growth in consumer spending and improved home sales. But the bottom line is the rebound is driven by government spending. I think it remains to be seen if the recovery is going to continue in the absence of federal help.

2010 Roth conversions - I think it's much ado about nothing. Less than 10 percent of my clients have asked me about it once I bring it to their attention. The real dilemma is having the money available to pay the taxes. When people sit down and see what's going to happen to their tax bracket despite being able to spread the liability out over three years, they don't want to part with the dollar today.

Politics - We're not going to see significant job growth for three to six years. The only way the Democrats will remain in control is to do something drastic. At some point they're going to cut government spending and reduce taxes, not raise them. They're pretty much going to pre-empt the Republicans on any kind of talking points.

The future of 401(K)s - We're not going to see any significant change to any of the existing retirement programs. Government can't support everyone and corporations can't support everyone. America needed to know that. Retirement success is all up to them.

Dan Houston
President, Retirement and Investment Division of Principal Financial

Dan Houston will go anywhere and do anything for the cause of retirement income planning. And this includes delivering the opening keynote at our 2nd annual Retirement Income Symposium in Chicago last October. Houston, president of retirement and investor services with Principal Financial Group gave a frank appraisal of what Americans want and need from retirement advisors in the wake of the financial crisis. And he was kind enough to give us some time afterward.

On saving and investing - It's not only about building retirement savings, but sustaining them. Consumption is down and savings is up. But will it last? It's a balancing act between consumption and saving. Fully 11 percent to 13 percent of income must be saved (in addition to Social Security). This figure is non-negotiable. And 30 percent to 35 percent of people do not participate in 401(k)s when offered to them. After this near death experience, let's hope it wakes them up.

On the role of the advisor - I think an era of personal responsibility is being ushered in. With the combination of defined benefit plans and Social Security, even if you planned for retirement in all the wrong ways, you were still okay. No longer. Advisors will play a critical role. It's the advisor that can get them to commit to a plan. Their knowledge and ability
to get people to participate in a plan, combined with their estate planning expertise, will make them
a critical force moving forward.

On effective retirement solutions - This last prediction is purposefully vague. Which retirement vehicles have proven their durability? Will it be VAs with living benefit riders, or target date funds or something completely different? I'll be happy to wager on this. The answer, like in college, is D. all of the above. But they have to be straightforward. When you try to over-engineer them is when you get into trouble.

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