Financial Advisors Need Benchmarks For Retirement Income

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Advisors Need Benchmarks For Retirement Income (The Wall Street Journal)

While investors have benchmarks like the S&P 500 during the wealth accumulation stage, advisors need a retirement benchmark, writes Dan Cassidy of Massachusetts-based P-Solve Cassidy in a new Wall Street Journal column. “A retirement benchmark would help advisers take a 401(k) balance and convert that into retirement income with the lowest amount of risk,” he writes. His benchmark would use two components — longevity and inflation risk.

“To manage longevity risk, my benchmark recommends that a 65-year-old client allocate between 10% to 15% of their retirement portfolio to a single-payment deferred life annuity that will only pay the client money if he or she lives past the age of 85. To manage inflation risk, the second component of my benchmark recommends that the client allocate the remaining approximately 85% of their portfolio to Treasury Inflation-Protected Securities, with maturities up to 20 years, to provide retirement income from age 65 to age 85.”

Rising Interest Rates Will Be A Key Client Conversation Topic In 2014 (Janus Capital Group)

Over 93% of financial advisors surveyed by Janus Capital Group said rising interest rates will be an important topic of conversation with clients this year. The survey also found that advisors are more concerned about rising interest rates than the clients by a nearly 2-1 margin.

“While we believe opportunities exist for risk-adjusted, fixed-income returns, advisors need to initiate conversations about the potential impact of rising interest rates as many of their clients have never seen a significantly down or flat bond market,” Colleen Denzler at Janus said. 84% of those surveyed said they will talk about stock market highs and income generation.

Blankfein Says Interest Rates Will Rise And That’s A Good Thing (Bloomberg TV)

Interest rates have been low for a very long time, but interest are expected to move higher now. Goldman Sachs CEO Lloyd Blankfein told Bloomberg TV, “any time there’s a sea change in markets people build their portfolios based on a certain set of assumptions.” And that if those assumptions change then investors will see losses.

“For example, interest rates have been very low for a very long time. Every company in the world that needed funding went out and funded itself for as long as it could. Every one of those debt instruments that created funding for companies was purchased by an asset manager somewhere who put it in. And if the corporations are better off for having borrowed at a low rate, what does it mean for the people who own that debt? It can’t be good for them. It may be good for them prospectively, for pension funds and insurance companies, because they’ll get a higher yield on their future purchases, but certainly on their inventory to this far, those might go under water.”

“What’s being suggested is that an adjustment will have to be taken, some losses will have to be acknowledged, but again, it’s a normalization. Interest rates can’t stay that low and ultimately it’s good for savers and investors in long-term liabilities that rates go up and in the short term it might cause a disruption. A steeper yield curve is generally good for banking businesses. It’s very hard to make money on a spread on interest rates when interest rates are near zero. Actually it probably would be better for the financial industry players to have interest rates higher in general, and to have it be a steeper yield curve.”

Wealthy Investors Have One Gigantic Advantage Over The Little Guy (Business Insider)

Our investment decisions are impacted by our behavioural biases. Veteran market strategists Jeff Saut and Richard Russell argue that the behavioural biases of wealthy investors are different from those that aren’t wealthy.

“The wealthy investor puts his money where the values are,” writes Saut. “And if there are no outstanding values, the wealthy investor waits. He can afford to wait. He has money coming in daily, weekly, monthly. In other words, he doesn’t need the market. He knows what he is looking for, and he doesn’t mind waiting weeks, months or years (they call it patience).” Meanwhile, Russell points out that the “little guy …always feels pressured to ‘make money’, to ‘force the market to do something for him.'” And this makes him a “consistent loser.”

Merrill Appoints New Head Of Practice Management Program (Investment News)

Bank of America Merrill Lynch is making efforts to stave off the retirement crisis in the financial advisory industry. Merrill Lynch has picked Racquel Oden to head its practice management and development training program, reports Mason Braswell at Investment News. Oden was previously managing director in charge of business development. Dwight Mathis, Oden’s predecessor, will now be managing director for the Western Pennsylvania complex in Pittsburgh.

“The way we really want to build our adviser census is through hiring and developing our own people,” Tom Fickinger, head of adviser growth and development at Merrill told Investment News. “It takes more capital and it is hard, but if you consider the average adviser is 48 years old, trading people back and forth isn’t a long-term strategy that can win.”

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