More On Tax Planningfrom The Advisor's Professional Library
- Annuities: Estate Tax The value of certain types of annuities may be included in an estate’s value. Understanding the intricacies of these inclusions is a critically important aspect of estate planning.
- Cafeteria Plans The income tax treatment of cafeteria plans is key to their popularity. Learn how to maximize the tax benefits of these “flexible benefit plans”.
“The only consistency in this business is our clients’ inconsistency,” advisor Scott Campbell said in Chicago on Tuesday.
An outspoken group of top advisors convened in the Windy City to sound off on everything from the political climate to women as a niche market to retirement income and behavior, and more. The Curian Capital-sponsored event began with a discussion of the current bifurcated market—DJIA and S&P 500 at all-time highs coupled with record unemployment; skyrocketing energy production but little relief at the gas pump; domestic markets up one minute, foreign and emerging markets up the next.
How are they possibly managing through it?
“In the 30 years I’ve been in this business, I’ve always spent one hour on conference calls at a maximum,” Campbell (left), president and CEO of Columbus, Ohio-based Global Financial Partners, explained. “Not any more; now it’s much longer. I see them seizing upon the information in almost a cafeteria style according to their political opinions. There’s pessimism about the markets and the world in general that I don’t believe in, and I feel it’s my job to combat that.”
Commonwealth Financial Network-affiliated advisor Rex Rexroad rhetorically asked about the central value advisors add.
“Everyone needs a financial advisor. The demands of the advisor are great because often we serve clients not just as a financial guide, but as a family counselor, a guru of many topics and at times, even a pastor or priest,” Rexroad (right) said to laughter. “We provide leadership because they have to have a plan to deal with what they may face in the future. We’re a friend and counselor to our clients.”
Scott Holstein, president and CEO of Pennsylvania-based Prudent Wealth Management added that in 2008, “it was about ensuring clients didn’t panic and make bad decisions in a down market. Today, it’s about ensuring they aren’t overly enthusiastic and making bad decisions in up markets. I try to counsel them not to get too excited. We might be out of intensive care, but we’re still in the hospital.”
When asked about how they are appealing to the estimated 76 million-strong Gen Y demographic, Campbell noted that he’s teaching a course at Ohio State University to young people about debt.
“A lot of them will graduate and go out and have a good time, buy a car, still have student loans to pay and then they might buy a house with a mortgage,” he said. “They wake up at age 30 or 35 with $300,000 worth of debt and say, ‘Whoa, how the heck did I get here?’”
Advisor Bruce Woods of Woods Investment and Insurance Services in Lafayette, Calif., has also been offering pro bono advice on 401(k)s and 403(b)s. He mentioned that self-directed plan participants weren’t interested what he had to say prior to 2008, but there's “sure interest now.” He added that he sees many clients investing according to information that came out during last year’s election, as well as the current political climate.
“They want text and mobile, and think email is too slow; they want an instant response,” according to Miehe. “As to the first question, about managing in such a volatile market, I just tell my clients I can’t predict what’s going to happen. I let them know that financial markets are a tool to improve their quality of life. Money without a satisfying quality of life just isn’t worth it. So it isn’t the ups and downs of the market that measures success, it’s their quality of life.”
Paul Orazio of Suffern, N.Y.-based Orazio Financial Services said that Gen Y’s expectations are much higher than those of previous generations, which has him both excited and concerned. He noted he’s spending an inordinate amount of time educating the demographic.
“The Greatest Generation understood and had respect for money,” Holstein (left) interjected. “The wasn’t the case with many baby boomers, and with Gen Y it’s even less so. They’re going to inherit a lot of money from their parents and grandparents, and they can’t go out on spending sprees. They have to respect it.”
Commonwealth’s Rexroad added that he’s drawn to the other side of the equation. He’s trying to get retirees through retirement with enough income, but notices that many want to set up accounts for their grandchildren.
“It’s not so much the children; they think they’ll be OK," Rexroad said. "It’s really the grandchildren they want to provide for.”
“What they’re saying is they like their grandkids more than their kids,” Campbell quipped.
Miehe said he and his wife are worried the current and future political system will “suck out all the opportunity” for their grandchildren.
“I recently read a book about the [President] Johnson era,” Campbell countered. “The only difference between what they said then and what is said now is the date; just change the dates. They said the Woodstock generation wouldn’t amount to anything, and we didn’t have access to Wall Street with 401(k)s and such. But we grew up and continued the American Dream. We grew up and dealt with it and so will they. As advisors, we have a responsibility to combat the cynicism that’s out there, and we do that by giving them a plan.”
Orazio noted that it’s harder to do given the amount of “noise that’s out there, and added that clients want advisors to filter out the knowledge that pertains to them.
“Information isn’t knowledge,” Miehe said to general agreement. “In many instances, information causes more confusion.”
The conversation moved to regulation, and whether the current burden is too much or not enough. Given it was a roundtable of advisors, the answers were surprisingly diplomatic.
“All of the added disclosure causes the client to panic,” added Terry Hannon of Illinois-based Theresa Hannon Financial Group.
Holstein said it was all part of a good faith effort to “level the playing field,” pointing to the Department of Labor’s fiduciary proposal in particular, to which Miehe responded, “They can try, but they can’t legislate ethical conduct.”
Orazio noted that most of the regulators “have never sat on our side of the desk,” and that he spends time explaining basic concepts to them during audits and examinations. The solution, he said, was to have former planners involved in implementing some of the compliance rules.
When asked about technology and its impact of their business, Campbell recalled how long it used to take him to gather information and generate reports, something that he now says “takes seconds.”
“I think we’re better and the client is better off as a result of tech,” he added. “Maintaining contact and the ability to access information is key to our clients’ success.”
However, Tony Peronne, president of Florida-based Estate & Business Planning Group, countered that while it’s good for the advisor, it’s not necessarily good for the client.
“I think in many ways it’s hurt the financial stability of this generation,” he argued. “They can just push a button and do so much damage. They might think they’re on top of it, but emotionally, it’s a mess. And that’s really what money is about—emotions.”
Holstein acknowledged there are positives and negatives to technology, but counted the access retail clients can get to institutional quality advice as the former.
“I can’t believe how many people, in 1999, wanted to go day trade,” Campbell interjected. “It sounded so sexy to them, so I’d say, ‘Fine, don’t touch the core portfolio, but let’s carve out a set amount for you to try it with.’ It always came back as pennies on the dollar, if it came back at all. Suddenly, it wasn’t so sexy.”
Rexroad then raised the topic of holistic retirement income planning and wondered about how many people are unprepared.
“Are we prepared to have the conversations with our clients about delaying retirement?” he asked. “Do we have the necessary tools in place to help? I love Scott [Campbell’s] point; we can turn it to a positive, but we have to start now, and it’s something I’m passionate about.”
Orazio noted that with reasonable spending, even in the current low-interest-rate environment, “It’s not as scary as people think. It will come back; people remember getting 5% in money-market accounts.”
“To [Orazio’s] point, we continually run Monte Carlo simulations and will hold their hands through this,” Rexroad added. “We must change our conversation and begin talking about the income that a portfolio can generate, not the portfolio's balance–it's a completely different discussion.”
Holstein argued that if a portfolio is performing well in a “compressed interest rate environment now, it will do even better as things revert to the mean.”
“But undermining all that is the impact of inflation,” Rexroad countered. “In addition to the financial conversation, we should focus on what our clients want to accomplish with their lives during their retirement. They want to do a lot of things during their retirement, and we are here to help them accomplish all of their goals. Retirement income planning is not a one time event, rather we view planning as a continual process and we are their guide along this stage of their journey.”
The discussion concluded with a reference to Sallie Krawcheck’s recent lament about what she believes is the erroneous assumption that “women are a niche market.”
“It drove me absolutely crazy,” she said recently. “Women as a niche—seriously? Women are the majority of the population, have higher college enrollment and are increasingly becoming the primary breadwinners over men. Women are not a niche.”
Picking up on the theme, Hannon said she “agrees and disagrees.”
"Look around the table,” she said to the gathering. “Women are less than 10% of the financial advisor industry. That’s a result of men traditionally working and women staying at home. We were not empowered, but now we are. Women are not a niche, but unempowered women are.”
Read more on AdvisorOne: