The Roth IRA conversion issue that came up recently.
For the general public, it has not been relevant, but for very wealthy families like the ones we work with, who can afford to pay the tax now in cash, and especially for those who will never need to draw on their IRA but view it more like a legacy asset to pass on to their kids or grandkids, this is an issue that we had to get our arms around and then be able to model the possible benefits for our clients.
What prospecting methods have been most successful for you in attracting retirement-planning clients?
We do not prospect, as our business comes from referrals. When we have been brought in to a situation with a client near retirement age, we have stuck to a very common sense approach. We have tended not to use fancy software or Monte Carlo analysis, but rather to focus on the basics of the client’s balance sheet and estimated annual expenses after retirement, backing into the right asset allocation from there.
The best prospecting tool with these clients is solid financial discovery including budget work, and then a common sense approach to asset allocation and income generation.
Do you face any frequently occurring retirement-planning mistakes with prospects?
I find a lot of prospective clients have not done the budgeting work required to really know what their annual income needs will be in retirement.
I have also found that wealthy folks have not optimized the investment products in their various retirement vehicles. For example, they might have a variable annuity where the insurance company’s stock funds have performed poorly vs. the benchmark and/or peers, so it makes sense for these assets to be invested in the insurance company’s bond funds, which have actually done better.
What challenges do you face when modeling clients’ retirement incomes and cash flows, and how do you resolve them?
Getting a client to sit down and do the budget homework required, which I feel is the starting point of any retirement plan. Also understanding issues like longevity within the family, which can impact whether or not long term care insurance is needed.
What mix of products and solutions do you use most often and why?
For tax reasons, often we advise clients from afar on a lot of their retirement assets, which are tied up in annuities and company pension/profit sharing plans. Within those vehicles, we are limited to the products within the plans.
When we have control over the assets, we are the investment decision makers, managing the stock and bond portfolios ourselves.
In the equity world, we have two stock strategies, both of which UBS pays to have audited by a third party, so we have an excellent audited equity track record to show to prospective clients. We do not outsource the investments to funds or other products.
Our clients prefer to work directly with us as the investors, delivering the core stock/bond investment management.