Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Portfolio > Mutual Funds

Securities alert: The 'Great Divide' debate continues

Your article was successfully shared with the contacts you provided.

Thom BruecknerIn the April issue of Senior Market Advisor, we published an article called “The Great Divide” where we allowed two of our readers an opportunity to square off Mano-a-Mano on the topic of whether advisors should have a securities license.

The feedback we’ve received from the article has been pretty powerful. We’ve heard from advisors, carriers, marketing organizations and industry talking heads. One email I received last week was particularly thoughtful and powerful — so much so that I wanted to share it with you in its entirety.

The following is from Thomas K. Brueckner, president and CEO of Senior Financial Resources Inc.


I want to congratulate you on a great and balanced piece of reporting in your comparison of the two very different practices of Jerry Tokunaga and Richard G. Dragotta in “The Great Divide” in the April issue of Senior Market Advisor.

I was securities licensed for the first 13 years of my 21-year career and can appreciate both sides. It is obvious that Dragotta works with younger “pre-retired” clients for whom “planning” and long-term, risk-based investments are appropriate. Tokunaga, meanwhile, works with seniors aged 70 and over. For them, FIAs should be a core holding.

I don’t believe the argument is an either/or, black/white debate. It’s about which plan is appropriate for which demographic. Each client must be evaluated on his or her individual needs and priorities.

Having said that, I routinely meet with retired prospects in their early 70s who present with more than 80 percent of the monies it’s taken them 40 years to save in risk-intensive equities and mutual funds — because their advisor has so allocated them. I believe that this constitutes malpractice, and my staff and I have made it our mission to rescue such folk — using primarily Tokunaga’s FIAs to do so.

I’ve also found that securities-licensed advisors are stunningly ignorant of what happens when a 70-plus investor — who once loved the complexity/excitement of active trading/management — has a stroke and can’t remember his name, never mind trade his or her account a week later. Typically, the less-involved spouse becomes the de facto successor “portfolio manager” of the couple’s investments. This comes at precisely the same time when he or she is suddenly overwhelmed by his or her new duties as a caregiver.

Think of the wife: Last month she was planning the couple’s next vacation, and this month she is dealing with home health agencies, pharmacies, gerontologists, and shopping for assisted living. Two months later, the couple’s next quarterly statement arrives in the mail, and she has no idea what that entry on page 19 (of 34) means, or why the account has lost money. An FIA is clearly the better alternative for some of the funds held by such a couple, and Tokunaga is correct to use them in such instances.

Obfuscation from the brokerage industry

Also, I did find it interesting that Dragotta thinks variable annuities “alleviate short-term volatility.” That reads like obfuscation from a brokerage industry known for it — and for the axiom, “When the only tool you own is a hammer (stocks/bonds), every client looks like a nail.” While the income rider on a VA might guarantee that a future accounting value — upon which a future income could be based — will grow by 5 percent to 6 percent a year and never decline, the client’s account value can (and has!) dropped like a rock. Thus, both a 50- and a 70-year-old can experience dramatic declines (57 percent from October 2007 to March 2009) in a VA. That’s on monies it’s taken one 30 and the other 50 years to save–subject to fees/expenses typically exceeding 3 percent to 4 percent a year.

One might argue that an index annuity is clearly the better recommendation for the 70-year-old, and that a combination of an index fund (or ETF in the short term) and an index annuity would better suit the 50-year-old with substantially lower fees and risk. These were the recommendations of authors Gensler and Baer (two former Wall Street regulators) in “The Great Mutual Fund Trap” (2003), the best book on investing I’ve ever read.

Jack Marion is right: If you really want to eliminate volatility and truly guarantee against loss, recommend the less expensive “genuine” (FIA) over the costly imitation.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.