David Aigner, Morgan Stanley Global Wealth Management Group, Senior Vice President/Financial Advisor, Houston
1. What has hit you or your clients out of left field, and how did you resolve it?
The one issue that has hit clients and their financial advisors with the greatest impact has been the increased volatility in the market and its effect on client’s portfolios.
As clients have strived to meet an ever higher percentage of their pre-retirement income needs in a long trend of declining interest rates, they have moved more and more towards equities to add the ‘extra return’ that they need.
We have worked to resolve this issue by building in targeted maturities in our portfolios to meet cash flow needs as they arise and by balancing our portfolios with a greater emphasis on dynamic asset allocation with the use of investments that are designed to reduce volatility through non correlation.
The emphasis is more on reducing volatility as compared to increasing alpha and therefore portfolio volatility.
2. What prospecting methods have been most successful for you?
Our success in marketing has come through educating clients as compared to selling them.
We will gather small groups of individuals that work for a single company and spend an hour over lunch educating them about their specific company plans. Most pre-retirement prospects have little knowledge about what retirement plans they have with their companies. They need to be educated on how these plans can be distributed and used to meet their income needs and long-range retirement goals.
This begins the process that allows them to build trust and confidence in us and our business.
3. Do you face any frequently occurring misconceptions with prospects?
Yes, I find that prospects believe they have a right to keep their standard of living and income needs at the same or higher levels in retirement and, in most cases, believe it is our obligation to do that for them.
Getting prospects to be realistic about the assets they have available to fund their retirement needs and how inflation will eat into those needs over time is a very long process. It is a process of education.
4. What challenges do you face when modeling retirement income and cash flows, and how do you resolve them?
The biggest challenge I find when modeling a client’s retirement plan, especially with regard to income and cash flow, is finding a successful plan that works on paper and then making certain that it can be implemented in reality.
It is critical to understand the difference when modeling between the expected total rate of return and the actual dollar cash flow the portfolio will generate to meet the retiree’s needs. In most years, there is a major disconnect between the two. This has been especially evident when managing portfolios in these turbulent times.
5. What mix of products and solutions do you use most often and why?
We use a mix of investments that include laddered individual fixed income securities (CDs and short- term notes) for safety, balance, and for managing cash flow. To hedge long-term inflation, we use stock managers of mutual funds that we have analyzed for risk-adjusted rates of returns.
We add exchange traded funds (ETFs) in select market sectors and then fill in the balance with non-correlated alternative investments, which can include absolute return funds, futures, commodities and real estate when required.
We will dynamically allocate and reallocate these as we see changes in the global economies.
We strive for a portfolio with consistency, low volatility and good overall balanced returns.