Raising the Bar

Frank Gencarelli, executive VP and director of the Retirement Services Group at GE Financial, and Cherie Hall, a GE income specialist, suggest other uses for annuities. Gencarelli points out that, in this day of vanishing pension plans and diminishing assets, a planner might execute one strategy for the “first 20 years of retirement,” when benefits might be expected to stay at an even level, and then use an annuity to provide income from age 85 on should benefits be reduced. Gencarelli says that the strategy utilizing GE’s product, Retirement Answer, can be implemented “at any time” as long as the annuitant is 75 or younger. Hall suggests another strategy. Say a client couple is receiving benefits on a husband’s pension, which will last either for his life expectancy or for 20 years, whichever is greater. If the couple funds the Retirement Answer product with a portion of that higher-dollar-value pension each month and if the husband passes away in the meantime, at the end of the 20 years the wife will receive the annuity from Retirement Answer; if the husband is still alive when the annuity is fully funded, both husband and wife will receive the proceeds of the annuity in addition to the continuation of the husband’s pension.

Uneducated or Unrealistic

You’re never too old to learn, and a client is never too old to be taught money management. Diane Pearson, a planner with Legend Financial Advisors in Pittsburgh, points out that often the planner must educate an older client about the basics of money, particularly if that client is a widow who has never handled money outside of the weekly grocery shopping. That education can be painful, as it was for a client of Pearson’s.

The client’s late husband had an estate that was, Pearson says, tied up mostly in retirement account assets rather than liquid assets. When he died, the widow took a large chunk of the life insurance proceeds and used it to buy a house in the Caribbean; she then proceeded to spend down nearly all the liquid assets. According to Pearson, the client is now “pretty much strapped” for cash; she must wait till each distribution from the retirement account. “If she really wanted this house in the Caribbean,” says Pearson, “she should have taken out a mortgage.”

Batterman further drives home the idea that clients may have unrealistic expectations, and not just with regard to money, when he tells of one of his clients facing a difficult choice. “Given the current configuration of assets,” Batterman says, “we were going to be facing depletion of the estate because of nursing home expenses.” However, he says, if the client’s home were sold and converted to cash, which would then be invested, there would be enough income to support him in the nursing home without depleting assets. “That, of course, forces the decision to sell the home, which the guy doesn’t want to do,” says Batterman, “because he thinks he’s going to go back home. They all think they’re going to go home.”

Sweet Charity

There are cheerier aspects to planning for the elderly, such as charitable giving. Take, for example, another client couple of Pearson’s. One of their sons died at age 33; the proceeds of his life insurance policy went to his parents. The couple, of Indian descent, set up a foundation, structuring it so that their other two children would manage it. Since both children are studying to be doctors, they plan on having the foundation provide funding for nurses from the U.S. to go to India to serve in very poor areas, all in their brother’s name. Says Pearson, “It’s something they can do, even though they don’t have millions, and it’s very cost-effective from their standpoint.” Pearson is working with Foundation Source on behalf of her clients (www.foundationsource.com), and has good things to say about the Norwalk, Connecticut-based provider of private foundations. “They will allow you to set up a foundation at a very reasonable price, just a couple thousand dollars,” she says. “They handle all the administration and [the advisor] looks great [to clients].”

A Question of Balance

It used to be a given that clients’ asset allocation models would shift more toward fixed income and away from equities as clients aged. But changes in life expectancy and the prolonged bear market have led some planners to question that perceived wisdom. Matthew G. Kovalcik, a planner and branch manager in Columbus, Ohio, for Raymond James, says that he has changed his allocation strategy a bit over the last couple of years. Now he regularly rebalances the portfolios of clients who previously had not opted to do so. He has a lot of investors, he says, with a buy-and-hold mentality “who saw many people in the generation ahead of them get rich that way,” but now they’ve realized that it’s no longer the case. Most clients now, he says, are “on quarterly readjustment of the portfolio across all assets: cash, fixed income, equities.” He also has obtained discretionary approvals on accounts not already set up that way. “My argument was, we’ve all seen how quickly the economic landscape changes with the threat of war or attack,” he says. “I don’t want to have to wait a long time to make adjustments to these portfolios.” His clients, he says, have been with him long enough to know that he does what’s in their best interest.

He also mentions a dilemma that other planners may find more common as clients age. There are some, he says, who refuse to adjust their standard of living to accommodate a reduced portfolio. A few clients have told him, in fact, that they don’t care. They don’t know what tomorrow holds; they may not live beyond 70, so why shouldn’t they enjoy the money now?

When that attitude is just sheer stubbornness, there’s not much a planner can do. But if clients are choosing financial self-destruction because of impaired judgment, there’s a place to go, at least for Raymond James advisors. David Ness, president of Raymond James Trust Co., points out that Raymond James has a “reciprocal referral relationship” with Rona Bartlestone & Associates, in Ft. Lauderdale, Florida, a private company that specializes in eldercare management. Raymond James advisors have access to an expert through an 800 number that they can call if they are concerned about the declining mental capacity of a client, such as if they’ve “answered the same question 16 times in the last two weeks” from that client.

Says Ness, “Everybody has what we euphemistically call ‘senior moments,’ and it’s when you can’t tell when the last one has ended and the next one has started that you have some real issues about mental capacity and competence.” Raymond James thought it important to develop this arrangement, Ness says, whereby advisors can learn how to better assess whether a client is having one of those “senior moments” or is in serious need of help–and if the latter, just what the advisor should do.