What retirement issue has hit you or your clients out of left field and how did you solve it?
Stress on the portfolio from recent market downturns is one and stress on the portfolio from the low interest rate environment that we’re in is the other.
These two events have clients revisiting their cash flow requirements and led us to go through what we call additional stress tests on the new post-correction values.
We just want to make sure that the client is still on target with the original investment plan and the retirement plan that we had for them in place. If they’re not, then we make certain adjustments.
What prospecting methods have been most successful for you in attracting retirement planning clients?
This year is a unique opportunity to attract retirement plan assets given the fact that the income requirement for Roth IRA rollovers has been lifted. This has allowed our group to highlight the benefits of a high net worth individual rolling over their assets into a Roth IRA.
Do you face any frequently occurring retirement planning mistakes with prospects?
Yes, misunderstanding of NUA, which is Net Unrealized Appreciation. We run across clients who have been advised or have it in their mind that when they retire, the entire value of their retirement assets should be rolled over into an IRA.
If the plan includes employer stock, that may not be the right thing to do because NUA (regulations) allows them to pay taxes on the original cost basis of the stock and capital gains on the appreciation of the stock instead of rolling it all over into an IRA and paying higher taxes when they pull the money out.
What challenges do you face when modeling clients retirement incomes and cash flows and how do you resolve them?
The toughest thing is probably the paycheck syndrome that they are used to. They’ve just finishing working and they’re used to getting a regular paycheck.
We have to get clients to understand that with rates so low, they can’t live off the income of the portfolio and that they need to look at what we call total return —taking money out and using part of the principal.
What mix of products and solutions do you use most often and why?
Lately we’ve been more concerned with the volatility in the portfolio as opposed to the returns. So we’ve been implementing long-short strategies that are now available in mutual funds, market-neutral strategies that are available in mutual funds, and opportunistic strategies in addition to your normal long-only portfolios.
We have lowered the volatility in many of our retirement accounts by using these strategies.