Annuity Specialist Strategies for 2011 and Beyond

As we enter an era of retirement planning aptly dubbed “The New Normal,” producers are preparing to work with clients who have weathered the past few years conservatively and with a great deal of caution. Yet few insurance advisors would recommend that investors keep their heads in the sand and their investments fallow. Determining how to communicate gingerly with clients and gently encourage them to reallocate funds for both asset protection and growth are just some of the challenges agents say they will face this year.

Moderating expectations

Mark Hollingsworth admits that, for the past 29 years, he has been managing his clients’ emotions much more than their financial affairs. Going into 2011, he is even more committed to that mindset, especially as investors enter what he calls “a new reality.”

“I think clients are still in a bunker mentality, and as soon as they are willing to get back into the stock market, I think they are going to expect 10 percent to 12 percent returns,” said Hollingsworth, a Pinehurst, NC-based advisor at Raymond James & Associates, and senior vice president of investments. “But we are in a non-leverage world now, and I am going to try and moderate expectations to 5 percent to 8 percent as the norm.”

To Hollingsworth, this is a very healthy expectation for investors over the long term. While a decreased ability to leverage and borrow money has certainly shrunk returns in the market, governments, corporations, and individuals have also stopped consuming as much and begun moving into a savings mentality — a positive in Hollingsworth’s mind.

Hollingsworth hopes that he can help his clients – particularly retirees – maintain conservative spending behavior and modulate not only their expectations for returns, but also what they believe they’ll need in their later years. Knowing that they will have to live on less is one thing; knowing they can live on less is much more freeing.

Tactical strategies

Doug Lockwood, a principal at Harbor Lights Financial Group in Manasquan, NJ and a CFP affiliated with LPL, has one word for the economic environment in which we live today: volatility.

“We’ve taken the stance of working away from static asset allocation and more toward a tactical strategy,” he said.

Lockwood, whose firm manages $275 million for 650 families, noted that for the past 10 to 20 years, the firm has been able to allocate client assets into such set areas as cash, bonds, and stock, and to do what he calls a reasonable job without making major changes for the long haul. But with the volatility he now sees in the market and the fact that interest rates are potentially rising, Lockwood said his firm and its clients need to be better prepared to weather what he projects as some nasty storms ahead.

“For starters, your average investor has much more in bonds today than they did in 2008 as a percentage of their total investments,” he said. “And when interest rates go up, your traditional bonds tend to go down.”

He noted that his conservative clients may have held 60 percent in bonds and 40 percent in stock, and felt very comfortable with that allocation in the recent past. But with interest rates threatening to rise, these clients may need to move that money into stocks, and move it again and again in order to make any decent kind of return — a notion he knows will likely go against their comfort level.

For Lockwood and his firm, the challenge is how to propose a reallocation like this and pick the right time to introduce it. While he has prepared clients by proactively alerting them through quarterly conference calls that changes to their allocations are on the horizon, he knows that telling them is very different than actually making the move.

While he believes that some clients will be comfortable with the new direction, many more will need steady hand holding, with most reassurance needed in person. He hopes, however, that the longevity of client relationships with the firm will help smooth over the bumpy path that many will feel they are treading.

Creating income

Many of Laurence Braunstein’s clients at Morgan Stanley Smith Barney believed that they had reached a place with their account balances where they could hold steady through retirement.