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Financial Planning > Trusts and Estates > Estate Planning

Mutual Fund Firms Fall Short in Providing Wealth Transfer Tools and Education

By Warren S. Hersch

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Mutual fund companies have long excelled at a core competency: providing advisors with investment planning strategies, information and services. But with a growing number of retirees now looking to cash out their nest eggs, or else keep assets intact for the next generation, advisors are increasingly turning to these companies for aid with distribution and wealth transfer planning.

Yet, interviews with National Underwriter suggest that firms are coming up short. While many mutual fund companies now provide tools and services to help advisors with post-accumulation techniques and services, the offerings are mostly general in nature. When formulating specific client recommendations, particularly those involving advance planning techniques, advisors still largely have to rely on their own resources or the expertise of other professionals, such as estate planning attorneys.

Advisors say there is a growing need for wealth transfer information and services because of the generational shift underway. Over the coming years, baby boomers stand to inherit an estimated $10-$40 trillion in assets. And as the leading edge of boomers now turns 60, many are transitioning from accumulation to distribution planning.

“Now that the boomers are moving into a distribution phase, it behooves everyone to focus on appropriate distribution techniques and tactics, in addition to estate planning,” says Vince Clanton, a financial planner and principal of The Chancellor Group, Atlanta, Ga. “All of the [mutual] fund companies are starting to address this issue, but I think we’ll need more sophisticated modeling over the next couple of years.”

Mark Stein, a financial planner and president of Aegis Financial Group, Phoenix, Ariz, is less charitable in his assessment. “We don’t rely on the mutual fund companies for information [on wealth transfer techniques],” he says. “The assistance they provide is minimal or basic, at best. When it comes to implementing a Stretch IRA or designating an estate beneficiary or trustee, they’re pretty much useless.”

In a 41-page report released this month, “Intergenerational Wealth Transfer: Fund, Companies, Baby Boomers Poised for Asset Shift,” New York-based Corporate Insight gave the firms mixed reviews with respect to online offerings for advisors. Of the 16 mutual fund companies that Corporate Insight tracked, 6 failed to provide any information regarding estate planning, beneficiaries, Stretch IRA products or other legacy-related issues. Of the remaining 10 firms, only 5 provide “adequate” information, tools and collateral materials in well-defined and easily located areas on their web sites.

In evaluating the companies, Corporate Insight explored 4 on-line resources: (1) strategies for implementing wealth transfer plans, such as step-by-step guides on conducting beneficiary reviews; (2) wealth transfer tools and calculators; (3) collateral and educational materials for advisors; and (4) the accessibility and organization of online content.

Alan Maginn, a senior analyst at Corporate Insight and the study’s author, says that making apples-to-apples comparisons among the companies is difficult because of the great variety of information and services available through the websites. But the report, in total, points up the need for enhanced content at most of the portals. The additional resources, Maginn observes, are not only for advisors’ benefit.

“If a client dies, and the [estate] beneficiary takes money to his or own broker, the money is leaving not only the advisor but also the mutual fund company,” says Maginn. “That’s a key issue here — keeping assets under management. “If [asset flight] is not a major issue for advisors today, it will be within the next decade.”

Clanton says the firms especially need to focus on withdrawal techniques and distribution modeling. He cites, for example, dollar-cost averaging, a method of building assets by investing a fixed amount of dollars in securities at set intervals. While the technique lends itself to the accumulation phase of lifecycle planning, Clanton says it may “not [be] a good discipline to follow” during the withdrawal phase because assets can be drawn down faster than the client would otherwise desire.

He adds that the fund firms can also lend greater assistance in determining the appropriate sequence of withdrawals from retirement accounts. Advisors have long advocated that clients withdraw first from taxable accounts, then the tax-favored vehicles: the traditional IRA, Roth IRA and/or 401(k). But Clanton says that conventional wisdom may no longer hold.

Not all advisors see the mutual fund companies — or at least those with which they do business regularly — as lagging. Michael Puls, an advisor with Arbor Financial Services, Pasadena, Calif., asserts that two of his broker-dealers, Commonwealth Financial Network and AllianceBernstein, are at “the leading edge” of the market with respect to provisioning estate and distribution strategies and educational services, including seminars. In the aggregate, he adds, the fund companies are more sophisticated in their treatment of wealth transfer planning than in years past.

Carol Fisburn, a financial planner and principal of Brentwood Advisory Group, Los Angeles, agrees that the firms have improved their support, but she draws a distinction between institutional and retail services. And, like other planners, she questions the advisability of relying on the firms’ recommendations alone.

“On the institutional side, firms like Fidelity and Charles Schwab have really stepped up support for independent, fee-based advisors, like me,” says Fisburn. “But would I depend on the mutual fund companies for specific wealth transfer solutions? No. I would definitely have to hire professionals to feel comfortable that the final recommendation [for the client] is accurate and appropriate.”

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