On a snowy day in January, Doug Orton, vice president of business development with MFS Investment Management in Boston, made the trek to AdvisorOne’s offices in Hoboken, N.J., to talk about retirement savings and how advisors can talk about the subject with clients still leery of re-entering the equity markets after the financial crisis.
MFS recently launched a new section on its website for advisors to help clients take control of their retirement and gauge whether their plans are on track, and Orton is charged with developing ideas for financial advisors specifically around their retirement practices.
“We see retirement planning as a great way to help advisors build their business,” he said during an interview that focused on how MFS was helping advisors respond to investor fears of market volatility.
During the Q&A below, Orton (left) pinpointed three areas of retirement income planning that advisors should help risk-averse clients address. All involve some form of asset diversification:
1. Time Diversification. Investors are sitting on a lot of cash because they’re still hesitant about re-entering the equities markets since the financial crisis. Many still believe they can reach their long-term financial goals, but how can they if they remain overweight cash? Orton believes advisors must help clients determine the right amount to set aside for expenses and safety in tough times. Once that issue is resolved, then the discussion can shift to actual investments for long-term goals.
2. Tax Diversification. Retirees often believe they will pay fewer taxes in retirement, but the reality is that how much they pay for taxes depends on their accounts’ registration type. Traditional IRAs and 401(k)s are treated as ordinary income while munis, Treasurys and Roth IRAs are tax-protected.
3. Allocation, Diversification and Rebalancing. Rebalancing helps a portfolio last long enough to generate income in retirement—and portfolio longevity depends on diversification and withdrawal rates.
AdvisorOne: Thanks for coming out in all this snow, Doug. Let’s get started with you telling me more about your three diversification topics.
Orton: What led us to come up with these three topics was an investor survey that we did last year. MFS found that after the downturn, investors were a lot less confident about what they owned, and when we asked them how they felt about their investments, they were more protective of what they owned. We also asked them, “How would you like to feel about your investments?,” and they said, “Confident,” but only 9% of them had a match between how they wanted to feel about their investments and how they actually felt.
They’re not really sure that they have the right strategy to meet their long-term goals. Clients have moved into cash and fixed income, and what we’re hearing from advisors is that clients are still reluctant to move back into equities. As we wrote about asset diversification, we thought we would touch on it briefly and move on, because everybody is already pretty familiar with it, but from what clients were saying in the survey, it turns out that they’re not.
AdvisorOne: What should the conversation with clients look like? What’s your advice to advisors?
Orton: If clients are telling us that growth isn’t as important—and the measure of growth as their primary goal got cut in about half over the financial downturn—how we talk about equities really should be in the context of how we